Australia: How To Identify Intellectual Property

Last Updated: 25 April 2007
Article by David Kenney

Ascertaining the existence of intellectual property (IP) has become increasingly relevant for many businesses today in light of the concessions and allowances available. Coupled with the Tax Laws Amendment (2006 Measures No 1) Bill 2006 (TLAB 1) now law (section 40-880 ITAA 1997), which attempts to expand deductions for blackhole expenditure, it is essential for businesses to identify these assets in order to reap any tax benefits.

The term IP describes the rights available at law for those who engage or invest in creative effort. The term, however, differs in a taxation context. For tax purposes, IPO is defined in s995-1(1) of the Income TaxAssessmentAct 1997 (ITAA 1997)as the rights possessed by a person under a Commonwealth law (or equivalent rights held under a foreign law) as:

  • the patentee of a patent

  • the owner of a registered design

  • the owner of a copyright; or

  • a licensee of a patent, registered design or copyright.

The tax law definition therefore has a much narrower meaning, as it does not encompass any other form of IF besides patents, copyright and registered designs. It is important to note that the tax law definition does not cover trademarks, customer lists, trade secrets and confidential information, which is particularly relevant when applying the capital allowance and capital gains tax regimes.

There are various tax benefits available to taxpayers who create or acquire IF, namely (from most-favourable to least-favourable) the Research & Development (R&D) provisions, the General Deductibility provisions, the Uniform Capital Allowance regime under Division 40 of the ITAA 1997 the capital gains tax provisions and finally, the new and expanded blackhole expenditure rules. Generally, expenditure incurred that satisfies the R&D provisions or the General Deductibility provisions will be deductible in full in the year in which it is incurred. Otherwise, it will There are various tax benefits available to taxpayers who create or acquire IF, namely (from most-favourable to least-favourable) the Research & Development (R&D) provisions, the General Deductibility provisions, the Uniform Capital Allowance regime be deductible over its effective life or form part of the cost base.

R&D provision

The most favourable concession available is the R&D provision, which provides financial assistance to companies to assist in IP development. In general, it enables companies (subject to certain criteria) to deduct up to 125 per cent of eligible expenditure incurred on R&D activities to develop IP and a 100 per cent deduction for expenditure incurred in acquiring core technology for R&D activities, subject to an annual limit of one-third of the R&D expenditure incurred. For expenditure that qualifies for the 125 percent concession, an additional 50 per cent deduction may also be available (the premium 175 per cent R&D tax concession). It is important to note that not all companies will have access to the additional premium rate, as a certain eligibility criteria must be reached. One limitation of the R&D tax concession is it does not provide a cash benefit unless the company has taxable income.

Additional to the concession, the R&D rebate is available to companies with an annual turnover less than $5 million and whose aggregate R&D amount is more than $20,000 and less than $1 million per year. The R&D rebate will be the cash equivalent of the 125 per cent R&D tax deductions and eligible companies can elect to receive the offset.

General deductibility provision

The second most favourable concession is the general deductibility provision. Generally, expenditure incurred will be deductible under Section 8-1 of the ITAA 1997 if it is incurred in gaining or producing assessable income. However, where the costs are capital in nature, it will not be deductible under section 8-1, but rather deducted over its effective life under the capital allowance regime. In general, costs incurred to create IP may be deductible if it satisfies section 8-1. Costs incurred in acquiring intellectual property will generally be capital in nature.

Capital allowance regime

Expenditure that is not eligible for deduction under the R&D provisions or general deductibility provisions may still be deducted under the capital allowance regime. Division 40 allows a tax deduction to the 'holder' of a 'depreciating asset', to the extent that the holder uses the asset for a taxable purpose.

The deduction must be claimed over the depreciating asset's effective life using the prime cost method. Under these provisions, a depreciating asset is defined to include certain intangible assets, including IF. This is where the tax definition of IP becomes important. Based on this tax definition, only patents, registered designs and copyright can be depreciating assets and deducted under the capital allowance regime. Accordingly, if expenditure incurred on trademarks, customer lists, trade secrets and confidential information do not satisfy the R&D concessions nor section 8-1, no deduction will be available for these items of IF. Rather, the expenditure incurred will be caught by the capital gains tax (CGT) rules and be included in the cost base of those assets as the tax definition of IP does not apply to the CGT regime. All items that do not satisfy the R&D provisions, General Deductibility provisions or Capital Allowance regime will be caught by the CGT provisions.

Blackhole expenditure

Under the new blackhole expenditure rule (section 40-880 ITAA 1997), certain blackhole expenditure can be deducted over five years provided:

  • expenditure is capital in nature

  • not deductible as a depreciating asset

  • not included in the cost base of a CGT; and

  • not deductible under a specific provision.

It is arguable that the new provisions will cover expenditure incurred in obtaining trade secrets or confidential information for use in a business. It is important to note that the deduction allowed under the blackhole expenditure rules (ie over five years) may be at a faster rate than the rate allowed under the capital allowance regime.

Looking at the above provisions, it is therefore essential for a business to identify its IP assets. This will enable the business to determine what concessions and allowances will be available and thereby maximise the tax benefits of the business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.