Deductibility for costs associated with Patent and Resource Management Act consent applications that are not granted or are withdrawn

Sections DG 61(A) and DJ 14B of the Income Tax Act 1994 and sections DB 13B and DB 28B of the Income Tax Act 2004

Introduction

Costs associated with patent and resource management consent applications that are not granted or are withdrawn have been made deductible. These costs were previously not deductible under either the general deductibility rules or the depreciation rules.

Background

Patents and certain consents issued under the Resource Management Act 1991 are depreciable intangible property. To the extent expenditure incurred in applying for a patent or resource management consent results in an application being granted, the costs must be capitalised and depreciated. However, if an application is unsuccessful or is withdrawn, any costs incurred up to that point are not depreciable as there is no depreciable asset.

Key features

A new section DG 6(1A) has been added to the Income Tax Act 1994 and new section DB 28B to the 2004 Act to allow deductibility for costs associated with patent applications that are not granted or are withdrawn. The costs that are deductible are those that would have been part of the cost of a patent (for depreciation purposes) if the application had been granted.

A new section DJ 14B has also been added to the Income Tax Act 1994 and new section DB 13B to the 2004 Act to allow deductibility for costs associated with resource management consent applications that are not granted or are withdrawn. Again, the costs that are deductible are those that would have been part of the cost of a resource consent (for depreciation purposes) if the application had been granted. On the recommendation of the Finance and Expenditure Committee, the change applies to both resource consent applications that, if successful, would have resulted in consents with a fixed legal life (fixed life intangible property) as well as non-fixed life consents that would nevertheless have been depreciable by other means (for example, included in the cost of a building or other structures).

Application date

The amendments will apply to applications that are not granted or are withdrawn in the 2004-05 or a subsequent income year.