Deductions – 779. Patents, trademarks and copyrights, April 2000

Until now there has always been a deduction allowed for tax purposes for the cost of devising, creating or designing any patent, design, trademark or copyright (as defined in the relevant Acts) or the costs of obtaining registration of such items or the cost of acquiring such items from others for the purpose of using such items in the production of income.

If the expenditure exceeded R3 000, the cost could not be written off immediately but over the probable useful life (up to a maximum of 25 years i.e. not less than 4% p.a.). There were restricted write-offs if the acquisition was from a related party.

This allowance was very useful and extensively used in transactions involving the sale of businesses.

There has now been a major change. If the expenditure in question was incurred on or after 29 October 1999-

The expenditure on inventions, patents, trademarks, copyrights or property of a similar nature or knowledge connected with the use thereof can only he written off over a fixed period of 20 years i.e. 5% p.a. If such expenditure amounts to R3 000 or less, it can still be written off immediately.

• The expenditure on designs or property of a similar nature or knowledge connected with use thereof can only be written off over a fixed period of 10 years i.e. 10 % p.a. If such expenditure amounts to R3 000 or less, it can still be written off immediately.
• The expenditure in respect of the acquisition from any other person of any trademark or other property of a similar nature (e.g. trade name) or any knowledge connected with the use of such trade mark or the right to have such knowledge imparted, may no longer be claimed as a deduction at all (i.e. not even R3 000).
• The expenditure (irrespective of the amount) to renew or extend registrations of trademarks and all the other items mentioned above are all still deductible in the tax year that the expenditure was incurred. It is important therefore that expenditure on these items is correctly classified.