Intangible asset depreciation self-assessment not proceeding
Following a change of government with this year’s federal election, the incoming Labor government inherited a lengthy list of announced though unenacted measures.
One such measure was a lauded innovation policy, announced by the former Morrison government as part of their digital economy strategy, to allow businesses to self-assess the effective life of certain intangible depreciating assets such as patents, copyrights, registered designs and in-house software from 1 July 2023.
In the Albanese government’s first federal budget, handed down on 25 October 2022, it was announced that this measure would not proceed, and the status-quo treatment would remain. The effective life of such assets, and therefore the rate at which they can be deducted for income tax purposes, will remain prescribed under law.
The announcement by the Albanese government was billed as contributing to budget repair though is unfortunate for affected businesses as the statutory rates for many intangibles are often much lower than would be the case if they reflected the true economic life of such assets.
For example, a business which develops software for licensing to customers, and which is therefore not able to qualify as in-house software, is generally limited to an annual deduction using an effective life of 25 years. Assuming a development cost in year 1 of $500,000, the annual tax deduction would limited to only $25,000 per year for 25 years.
If you have any questions regarding this announcement, or how your business intangible assets will be treated for tax purposes, please do not hesitate to contact us.
Author
Aaron Fitchett
Partner
Aaron is the Partner in Charge at Baumgartners. He specialises in complex tax matters, is a Chartered Tax Adviser with over 25 years’ experience advising private and corporate clients on a wide range of tax and commercial matters. Aaron also represents clients in disputes with the Australian Tax Office. Aaron holds a Master of Taxation from UNSW and is an active member of the Taxation Institute of Australia.
Recent articles by Aaron
-
Do you have an SMSF? Beware of these new rules
Following commencement on 1 July 2017 of the most extensive changes to Australia’s superannuation rules in a decade, the Australian Tax Office are introducing onerous new event-based reporting requirements which will affect every SMSF from 1 July 2018.
-
Business Stimulus in Response to Coronavirus
In response to the unprecedented global economic impact of COVID-19, the Federal Government has announced a range of measures to support Australian businesses, some with immediate effect. Here is what we know so far.
-
Senate Passes Amendment to Increase Instant Asset Write-Off
Senate votes for $30,000 instant asset write-off and expanded eligibility for small and medium businesses.