ATO Interpretative Decision

ATO ID 2003/542 (Withdrawn)

Income Tax

Deductibility of costs of maintaining a patent
FOI status: may be released

This ATO ID applies established principles and does not contain an interpretative decision.

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

Status of this decision: Decision Withdrawn 9 April 2010

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for annual renewal fees paid to IP Australia and solicitors fees for ongoing administration which will be incurred during the life of a patent?

Decision

Yes. Annual renewal fees and ongoing legal fees are expenses that are revenue in nature and deductible under section 8-1 of the ITAA 1997.

Facts

The taxpayer successfully obtained a standard patent for a product and claims deductions for the decline in value of the resultant asset, an item of intellectual property, under section 40-25 of the ITAA 1997.

To maintain the patent IP Australia requires an annual renewal fee be paid from the fifth anniversary of the filing date for the remaining duration of the standard patent run-time. In addition, patent lawyer administration fees will be incurred throughout the life of the patent.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows deductions for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or in carrying on a business for the purpose of gaining or producing assessable income. However, a deduction is not allowable for a loss or outgoing if it is of a capital, private or domestic nature, incurred in relation to producing exempt income or specifically prevented by a provision of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936).

It was held in Case F19 (1955) 6 TBRD 119; (1955) 5 CTBR (NS) Case 78 that expenditure incurred to renew registered trademarks as required by New Zealand legislation was revenue in nature and allowable as a deduction under subsection 51(1) of the ITAA 1936 (now section 8-1 of the ITAA 1997). It was considered that because the expenditure was not necessary to establish the original title, was recurring and had the character of expenditure necessarily undertaken from time to time by owners of income-producing assets in order to prevent wastage or deterioration it was not capital in nature.

Canberra Income Tax Circular Memorandum (CITCM) No. 288 considered that the renewal fee payable before the expiration of a patent is not capital expenditure. It states that the annual fee incurred in the maintenance of an existing asset in the shape of the patent right is an allowable deduction under subsection 51(1) of the ITAA 1936.

The taxpayer is therefore entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of annually renewing a patent as required by IP Australia and ongoing administration fees charged by a solicitor as these costs are revenue in nature.

Date of decision: 3 October 2002

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
subsection 51(1)

Income Tax Assessment Act 1997
section 8-1
section 40-25

Case References:
Case F19 / Case 78
(1955) 6 TBRD 119
(1955) 5 CTBR (NS) 480

Related ATO Interpretative Decisions
ATO ID 2002/810

Other References:
Canberra Income Tax Circular Memorandum (CITCM) No. 288

Keywords
Intellectual property use expenses
Patents
Deductions & expenses
Capital Allowances CoE

Business Line: Effective Life and Capital Allowances Centre of Expertise

Date of publication: 11 July 2003

ISSN: 1445-2782

history

	Date:	Version:
	3 October 2002	Original statement
You are here →	9 April 2010	Archived

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