Capital expenditure incurred in successfully seeking to obtain a patent

Is capital expenditure incurred, by the inventor of a new manufacturing process in successfully seeking to obtain a patent for the process, deductible under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The capital expenditure incurred in successfully seeking to obtain the patent will form part of the cost of the patent. A deduction for the decline in value of the patent is allowable under section 40-25 of the ITAA 1997.

The taxpayer has invented a new manufacturing process and has applied for and been granted a patent for the process. Capital expenditure incurred by the taxpayer include fees for advice from a patent lawyer about the application for a patent and statutory application fees. The taxpayer intends to exploit the patent for income producing purposes.

The rights a patentee holds under a Commonwealth patent is an item of intellectual property pursuant to the definition of that term in subsection 995-1(1) of the ITAA 1997. An item of intellectual property is a depreciating asset pursuant to the definition of that term in section 40-30 of the ITAA 1997.

The cost of a depreciating asset includes capital amounts that are taken to have been paid to hold the asset (sections 40-185 and 40-220 of the ITAA 1997). Expenditure incurred by the taxpayer in obtaining a patent for the manufacturing process include fees for advice from a patent lawyer about the application for a patent and statutory application fees. Expenditure of this type is considered to be of a capital nature and form part of the cost of a depreciating asset. A deduction for the decline in value of a depreciating asset is allowable to the extent the asset is used for a taxable purpose.