Can I claim my patent costs as R&D expenditure?
The Federal Government’s R&D Tax Incentive program provides up to a 43.5% cash refund on costs incurred on eligible R&D activities. Under the program, there are two categories of activities that are eligible for a tax offset - core R&D activities and supporting R&D activities.
Commercial, legal and administrative aspects of patenting, licensing or other activities’ are specifically excluded from being core R&D activities. This means they can be supporting R&D activities, only where they are undertaken for the dominant purpose of supporting the core R&D.
When will costs of IP protection be eligible R&D expenditure?
While supporting the core R&D need not be the only reason for securing patent protection, it does need to be the most important. The purpose is assessed at the time you undertake the activity. In other words: what did you have in mind as the reason(s) you were securing the patent at the time it was filed, and did one of those reasons outweigh all others?
There are many reasons for which a business may seek IP protection. Some examples are:
To create opportunities for licensing as a source of income
To protect interests while R&D is conducted together with external parties
To prevent competitors from restricting access to technology that is required for an R&D program to progress
To enjoy a larger market segment than would otherwise have been possible or to allow for a higher margin on a product
To provide strength in negotiation with other parties in the sale of the business.
To determine what the dominant purpose was for patenting, you need to consider all the reasons you had for filing the patent. You also need to consider how important each purpose was compared to the other purposes.
This analysis needs to be performed on a case by case basis in consideration of factors such as the stage of your R&D program and the documentation you kept to support the reasons for the patent filing.
For advice on whether patent and other IP protection costs are eligible R&D expenditure in your circumstances, please contact our experts.