As part of the 2021-22 Federal Budget, the government announced a policy to allow taxpayers to self-assess the effective life of certain intangible assets effective from 1 July 2023.
The existing tax law will continue to apply to intangible assets held prior to 1 July 2023.
Exposure draft legislation for this measure was released on 3 December.
Currently, the following statutory effective lives apply to the following intangible assets.
A prime cost depreciation method must be applied to calculate the decline in value for tax purposes.
In self-assessing the effective life of an intangible asset, a taxpayer will need to make a choice for the income year the asset is first used or held ready for use, and make an estimate having regard to:
- how they expect to use it
- its use for a taxable purpose by any taxpayer
- the term of the asset and any options available to extend or renew the term
- the estimated time when the asset is likely to be scrapped
The effective life can be reassessed in a later year of income if a previous estimate is no longer appropriate due to changed circumstances of use.
With one exception, a taxpayer can choose to apply the statutory effective lives in the above table or self-assess the effective life of an intangible asset held from 1 July 2023.
An exception will apply where a taxpayer acquires an intangible asset from an associate. In this case, the taxpayer’s (transferee) effective life of the asset will be the remaining effective life of the former holder (transferor) of the asset.
If a taxpayer chooses to apply the statutory effective lives for an intangible asset previously held by another taxpayer (transferor), the statutory effective life is the period remaining by the transferor.
For taxpayers with material intangible assets in development or use, we would recommend that data on the historical use of these assets be collected to determine an appropriate tax claim strategy, support an effective life estimate and a reasonably arguable position to mitigate any penalty risk.
Finally, it is worth noting that the temporary full expensing depreciating measures may apply to intangible assets acquired between 6 October 2020 and 30 June 2023.
FOR MORE INFORMATION
If you want more information, please contact your nearest RSM office.