The Instant Asset Write-Off scheme under the Income Tax Assessment Act 1997 (Cth) allows business to claim an immediate deduction for depreciating assets, provided they are used for tax-deductible purposes.

On 25 March 2020, the Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) came into force as part of the Federal Government’s response to the economic devastation caused by the COVID-19 pandemic. The Act introduced some important changes to the IAWO scheme, whereby:

  • the maximum threshold of eligible assets was increased to $150,000 (from $30,000) and applies to each individual asset; and
  • businesses with an annual turnover of up to $500 million (upwards of $50 million) became eligible for the incentive, provided the assets were first used or installed before 30 June 2020.

In early October 2020, Treasurer Josh Frydenberg announced that all Australian businesses with a maximum annual turnover of $5 billion can now take advantage of the IAWO scheme. The cut-off date for first using or installing eligible assets was also extended to 30 June 2022. This update means that 99% of Australian businesses are now eligible for the incentive, with Australia’s very largest businesses being the only exceptions.

What is an eligible asset?

Assets eligible for the IAWO scheme are ones in which a depreciation in value is deductable, pursuant to section 40-25 of the ITA. This applies to both tangible assets (e.g. coffee machines, office furniture and work vehicles) and intangible assets, such as IP. Section 40-30 of the ITA lists items of IP as a depreciating asset. Section 40-95(7) sets out the effective life of IP protection as follows:

  1. Standard patent – 20 years
  2. Innovation patent – 8 years
  3. Petty patent – 6 years
  4. Registered design – 15 years
  5. Copyright (except that in a film) – the shorter of a) 25 years from when you acquire the copyright; or b) the period until the copyright ends
  6. A licence (except one relating to a copyright or in-house software) – the term of the licence
  7. A licence relating to a copyright (except that in a film) – the shorter of a) 25 years from when you became the licensee; or b) the period until the licence ends
  8. In-house software – 5 years

How does this impact businesses?

Depending upon the type of IP asset and level of protection you seek, its acquisition can become quite costly. Under the IAWO scheme, the cost of your eligible IP asset can be written off in the first financial year, as opposed to deducting its depreciation annually over its entire effective life. The cost of eligible IP includes both the purchase price of the IP asset, as well as the costs associated with its maintenance and development. The professional costs associated with acquiring an IP asset (such as IP Australia filing fees and engaging patent attorneys and lawyers) may fall within the ambit of the incentive.

Businesses looking to advance and/or acquire any IP are encouraged to take advantage of the IAWO incentive immediately, as the asset must be first used or installed by 30 June 2022 to be eligible for the scheme.

If you have any questions, or wish to discuss a potential application for any IP protection, please contact a member of Thomson Geer’s intellectual property team for a confidential discussion.

Authors

Tony Conaghan | Partner | +61 7 3338 7502 | [email protected]

Ariane Kidby | Summer Clerk