Tax Rules for Patents and Licences

Just had the $1 million idea? Innovators have some interesting rules to contend with when it comes to their taxes—sometimes the last thing on their mind when the Eureka moment happens!

For those reasons it’s a good idea to visit with a tax pro when applying for patents and licenses.

Patents and licences are usually written off on a “straight-line basis” over the life of the patent or licence in Class 14. That is, if you paid $15,000 for a patent for a period of 15 years, the depreciation would be $1,000 a year.

If the patent or licences have an unlimited life, they are classed as “eligible capital property.” Three-quarters of the costs may be written off on a 7% declining balance. For all patents and rights to use patented information acquired after April 26, 1993, a CCA Class 44 is available with a 25% declining-balance rate. The taxpayer and his/her tax practitioner have some options with regards to claiming these rights, so detailed discussion in advance of tax season is well advised.

Excerpted from Make Sure It's Deductible. © Knowledge Bureau, Inc. All rights reserved.