Currently, intangible assets are subject to a legislative “effective life” period which is used to calculate their rate of depreciation.
However, these existing provisions which mandate their life span are inflexible and often do not represent the true time period over which the asset may provide an economic benefit.
On 7 December 2015, the government announced, as part of its National Innovation and Science agenda, changes to the depreciation of intangible assets. The measure was to apply to assets acquired from 1 July 2016 however on 9 May 2016 the Australian Government assumed a caretaker role. While the continuation of this measure will be a matter for the incoming government to decide, it highly likely that it will be retained.
The draft legislation proposes to introduce a choice between the existing statutory life or, alternatively, to self assess the tax effective life of an intangible asset. This will enable companies to better represent the period of time over which they anticipate their intangible assets to produce an economic benefit.
This method of calculation brings the treatment of depreciating intangible assets into line with tangible assets.
The legislation will apply to a range of intellectual property including patents, registered designs, copyrights, some licenses and access software as well as in-house software.
The Company can assess the effective life of the asset, and then use that period of time to calculate its depreciation. When calculating the life of the asset will a company can consider the rate at which the asset is likely to become obsolete, changes in circumstance, developments in the technology or market or changed nature of the asset. The provisions are being welcomed by companies who invest heavily in the development and registration of their patents only to have them superseded before they have realised their depreciated value.
About Sarah Bartholomeusz:
Sarah Bartholomeusz is the founder and CEO of You Legal, a new category of law firm providing top-tier corporate and commercial legal services and corporate governance support to ASX-listed companies as well as growing businesses at all stages of their life cycle. In 2015 You Legal was the winner of the Telstra Business Women’s Award in the Start-Up category for South Australia. As Australia’s leading online legal counsel, Sarah has taken over a decade of experience and committed to ensuring businesses have access to legal advice that minimises their risks and maximises their potential.