HWL Ebsworth’s National Taxation Group earlier summarised the key tax changes introduced in the first and second Federal Government COVID-19 Stimulus Plans, as well as measures taken by State and Territory Governments, here.
Businesses should consider taking steps to protect their IP or bringing purchases forward to capitalise on measures announced in the Federal Government’s first COVID-19 Stimulus Plan.
IAWO threshold changes
Businesses can immediately write off assets that cost less than the IAWO threshold in the year they are first used. When an asset is written off its value is deducted from the business’s assessable income, reducing the business’s tax payable.
On 12 March 2020, the IAWO threshold increased from $30,000 to $150,000 (GST exclusive). It is now available to businesses with an aggregated annual turnover of less than $500 million, up from the previous limit of $50 million. The changes will now be in effect until 31 December 2020.
The measure is limited to depreciating assets. Under the Income Tax Assessment Act 1997 (Cth), depreciating assets include the rights of an entity as the:
- Patentee or licensee of a patent;
- Owner or licensee of a registered design; or
- Owner or licensee of a copyright.
The depreciating assets must be acquired and used or be ready to be used before 31 December 2020. This means that new IP rights must be granted under the Patents Act 1990 (Cth) or Designs Act 2003 (Cth), or created under the Copyright Act 1968 (Cth), before 31 December 2020. Accordingly, businesses with pending applications that become registered before 31 December 2020 may be able to take advantage. Similarly, existing IP rights acquired prior to 31 December 2020 may be eligible. The acquisition can be undertaken through an assignment or a licence of the intellectual property – both of which will have various commercial and tax implications.
For businesses, this change means that:
- Rather than depreciating an asset annually over a number of years, you can write off the asset entirely in the first year (so tax deductions that you would have eventually claimed are brought forward);
- The cost of IP falling within the above definition can be written off, provided it is less than $150,000. The cost of IP can include the amount you have paid for an asset (eg the purchase cost), as well as the cost of maintaining the asset (eg additional development costs relating to existing IP); and
- The cost of multiple separate assets can be written off, provided each asset falls under the $150,000 threshold.
Backing Business Investment incentive scheme
Businesses that are not eligible for the IAWO may be able to claim a 50% tax deduction under the Backing Business Investment (BBI) scheme. To be eligible, a business must:
- Have an aggregated annual turnover of less than $500 million;
- Acquire a depreciating asset (including new IP rights as defined above) after 12 March 2020; and
- Use the asset or install the asset for use by 30 June 2021.
The BBI scheme allows businesses to claim a 50% deduction on the cost of the asset. The balance of the cost will then depreciate over the statutory life of the asset according to existing rules.
Unlike the IAWO, the BBI scheme captures assets that:
- Cost more than $150,000; and
- Are not used or installed for use by 31 December 2020.
However, the BBI scheme applies to new assets only, and does not extend to the acquisition of existing IP rights. New licenses of existing IP rights may be eligible, assuming that the licensing agreement is validly executed.
Our team is available to assist with all IP and taxation matters. Please contact us if you would like to take advantage of the changes to the IAWO threshold or BBI scheme to improve the protection of your business’s IP, or if you would like to discuss the tax implications of the assignment or licensing of IP rights.
This article was written by Luke Dale, Partner, Nima Sedaghat, Partner, Amy Liu, Associate and Kelly Williamson, Solicitor.