VALUING IP

There are many ways to value IP, and given the complexity of valuation, someone with accounting and IP expertise will be required. Make sure your accountant, business adviser or lawyer has experience in the valuation and management of IP.

IP rights must, of course, be in force and valid, and it may be appropriate to seek warranties in this regard. Patent attorneys and lawyers can advise on validity of registered IP rights.

Be clear on IP for tax purposes

Be aware that tax and IP have two points of contact:

1. Tax applies to any gains made from commercialising your IP, such as sales, franchising and/or licensing your IP to others. It could also apply if you sold your patent or trade mark and its value, like a house, has increased in value.
   
   
2. There are transaction taxes such as stamp duty, GST and withholding tax that could apply. Given this potentially costly issue, it would be wise to seek accounting advice on the structure you would use to run the business you intended to buy. This is an important decision considering the IP assets that are part of the sale. For more information on IP and taxes, refer to IP and Starting a Business.
   

Tax treatment for different IP

The taxation of the different types of IP is complex, so speak to your accountant about how your developed and acquired IP should be treated, and how your IP could be leveraged to deliver taxation benefits, e.g. through transfer pricing.

However in general terms, pursuant to the general tax deduction provisions of the Income Tax Assessment Act 1997, losses and outgoings incurred to create and/or own IP rights, or for the use or enjoyment of existing IP rights may attract a tax deduction. A deduction is claimable only to the extent that the losses or outgoings are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing this income. Importantly losses or outgoings of capital, or of a capital nature are not deductible. This means that for most small businesses, the expenditure to purchase IP or outgoings incurred in the creation of IP will generally be regarded as capital outgoings, whereas periodic expenses, incurred for example in obtaining a licence to use third party IP, or to take IP infringement action against another, will be deductible in the year in which the expense was incurred. Similarly, the costs to register a trade mark, patent or design are of a capital nature as registration provides the IP owner with an enduring benefit, whereas expenses to maintain an existing IP registration to ensure its continued existence would be deductible.

How do you check who owns the IP before you buy it?

It's vital to check the ownership of the IP you are buying. For example, when buying a business and its associated trade mark, it is wise to search IP Australia's trade mark register to see who owns the trade mark. But that's not all - as a third party could have an interest in the asset or there could be a loan held over the trade mark. It is recommended that you seek expert advice - a lawyer, or a patent or trade mark attorney can help you.