Despite unhappiness in the business world about proposed changes to tax law
on trademarks, patents, designs, copyrights, and similar property, the
proposed law is still in the 1999 Revenue Laws Amendment Bill, soon to be
promulgated.
Sowhat are the changes?
Because you would expect to derive an enduring benefit from a trademark, or
similar property, the costs of devising, developing or buying such assets
are considered capital in nature - and therefore not tax deductible.
Until now, an allowance was provided in the tax legislation whereby, if the
cost exceeded R3 000, it was claimable over the probable period of the life
of the asset, limited to 25 years. If the cost was less than R3 000, it was
deductible immediately.
If you incurred expenditure to renew the registration of your trademark, or
similar property, you were entitled to deduct that cost in the tax year in
which it was incurred.
If you incurred costs on the named assets before October 29, 1999, you
would make the same claims as before. But from October 29, 1999, if you buy
a trademark, or similar property, or any knowledge connected with it, you
will not be entitled to claim any tax on it.
For "similar property", read trade name.
The prohibition on any claim only relates to acquiring the trademark, or
similar property, from another person. If you incur costs in devising or
developing one, or you renew its registration, the costs will be claimable
on the same basis as for inventions, patents and copyrights.
If you incur expenditure (to purchase, develop or devise) an invention, or
similar property, or on any knowledge connected with their use, you will be
able to deduct the costs over a period of 20 years (five percent a year).
If you incur expenditure on a design, or similar property, you will be able
to deduct the cost over 10 years (10 percent a year).
There will no longer be any discretion to reduce these periods, if you
believe that the life of the asset will be shorter than the predetermined
period.
If you renew or extend inventions, patents, copyrights, trademarks and
designs, you will continue to be entitled to claim the costs you incur to
do this.
When you are buying a business, your projections of the future potential of
the business must ensure that no tax deductions have been taken into
account for the trademarks and names, and the correct periods have been
used for the write off of designs, patents and copyrights.