ATO ID 2002/812: Capital expenditure incurred in unsuccessfully seeking to obtain a patent
Date of decision: 10 May 2002
Year of income: Year ending 30 June 2002
Business line: Public Groups and International

Issue
Is capital expenditure, incurred by the inventor of a new manufacturing process in unsuccessfully seeking to obtain a patent for the process, deductible under section 40-830 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Decision
Yes. Where the application for the granting of a patent is unsuccessful the capital expenditure incurred in seeking to obtain the patent may be deductible under section 40-830 of the ITAA 1997 provided certain conditions are met.

Facts
The taxpayer invented a new manufacturing process and had applied for, but was unsuccessful in being 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 had intended to exploit the patent for income producing purposes but has now abandoned the project.

Reasons for decision
Summary: Expenditure incurred by the taxpayer include fees for advice from a patent lawyer about the application for a patent and statutory application fees that was associated with the taxpayer's proposed project. The proposed project was the exploitation, for taxable purposes, of a patent granted for the manufacturing process. A depreciating asset does not exist as no patent was granted. Section 40-830 of the ITAA 1997 provides a deduction for 'project amounts' that are allocated to a project pool. Section 40-840 of the ITAA 1997 defines 'project amount' to be capital expenditure that: Qualifying project amounts are generally deductible over the life of the project (subsection 40-830(3) of the ITAA 1997). However the undeducted balance of a project pool is also deductible for the year in which a project is abandoned (subsection 40-830(4) of the ITAA 1997). As the taxpayer was unsuccessful in being granted the patent then the following has occurred: In these circumstances, the relevant expenditure will be deductible under section 40-830 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-830 subsection 40-830(3) subsection 40-830(4) subparagraph 40-840(2)(d)(vi)
Related ATO interpretative decisions: ATO ID 2002/810 | ATO ID 2002/811 | ATO ID 2002/832
Subject references: Intellectual property rights Intellectual property development expenses Inventors Patents Depreciating assets Cost of a depreciating asset