ATO Interpretative Decision

ATO ID 2002/755

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a marine park permit a depreciating asset as defined in subsection 40-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No, a marine park permit is not a depreciating asset as defined in subsection 40-30(1) of the ITAA 1997.

Facts

The taxpayer paid a lump sum amount to obtain a marine park permit. The permit is valid for a number of years and allows the taxpayer to use their vessel to access certain areas of the marine park that was not previously accessible given the type of licence the taxpayer was holding. It is expected that the expanded marine park access will provide economic benefits for the taxpayer's business.

Reasons for Decision

A depreciating asset is defined in subsection 40-30(1) of the ITAA 1997 to be an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used but excludes land, trading stock and intangible assets except for those intangible assets listed in subsection 40-30(2) of the ITAA 1997 that are not trading stock.

The term 'intangible asset' in section 40-30 of the ITAA 1997 is not defined and therefore takes on its ordinary meaning. The Macquarie Dictionary [MultiMedia], version 5.0.0, 1/10/01 relevantly defines 'intangible' as:

adjective 1. incapable of being perceived by the sense of touch, as incorporeal or immaterial things.

...

3. (of an asset) existing only in connection with something else, as the goodwill of a business.

and 'asset' as:

noun 1. a useful thing or quality: *This ability to roll the eyes was a great asset on this sort of expedition. -criena rohan, 1963.

2. an item of property, as a building, a piece of equipment, etc.

3. an economic resource: *And even the best-intentioned Australian governors saw the future of the Aboriginal as becoming an asset in the developing cash economy. -c.d. rowley, 1970.

Further, the phrase 'intangible asset' is defined as;

noun an asset, such as a patent, copyright, brand name, etc., which has no physical properties but which can be identified, given a monetary value, and therefore recorded on a balance sheet.

These definitions are mirrored in the The Australian Accounting Standard AASB 138 Intangible Assets which states:

An asset is a resource:

(a)

controlled by an entity as a result of past events; and

(b)

from which future economic benefits are expected to flow to the entity.

and

An intangible asset is an identifiable non-monetary asset without physical substance.

From this, the essential elements of an 'intangible asset' are that:

•

it has no physical substance

•

is non-monetary

•

is an economic resource from which economic benefits are expected to flow, and

•

can be given a monetary value.

A marine park permit is a licence granted by the Government, which allows a taxpayer to access certain areas of the park. It has no physical substance as it is a right of access and it is non-monetary. It is an economic resource as it is expected that the taxpayer will derive economic benefits from being able to access areas of the marine park from which they would otherwise be excluded. The marine park permit is able to be given a monetary value.

Therefore, it is an intangible asset. It is not an item of intellectual property as defined in subsection 995-1(1) of the ITAA 1997.

Nevertheless, a marine park permit is not an intangible asset listed in subsection 40-30(2) of the ITAA 1997, therefore it is not a depreciating asset for the purposes of Division 40 of the ITAA 1997.

However, the marine park permit would fall under the meaning of a statutory licence as defined under subsection 124-140(3) of the ITAA 1997 and is a capital gains tax asset within the meaning of section 108-5 of the ITAA 1997.

Amendment History

Year of income:  Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Division 40
   subsection 40-30(1)
   subsection 40-30(2)
   paragraph 124-140(3)(a)
   subsection 995-1(1)

Related Public Rulings (including Determinations)
Capital Gains Cell Determination TD 34

Other References:
Australian Accounting Standards Board [AASB] 2010, AASB 138 Intangible Assets, Canberra, viewed 1 May 2011.

Keywords
Intellectual property rights
Statutory licence expenses
Intangible assets
Depreciating assets

Siebel/TDMS Reference Number:  DW384867

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  31 July 2002

ISSN: 1445-2782