A taxpayer is entitled to claim a tax (capital allowance) deduction for the decline in value of depreciating assets used for income producing purposes. A depreciating asset is an asset that:
Intellectual property – an allowable intangible asset
- has a limited effective life; and
- can reasonably be expected to decline in value over the time it is used,
- but specifically excludes land, trading stock and intangible assets not set out in the legislation.
Certain items of intellectual property are included in the list of intangible assets set out in the legislation and can therefore be considered a depreciating asset. These are limited to the rights (including equitable rights) that the taxpayer has under a Commonwealth law as:
- the patentee of a patent;
- the owner of a registered design;
- the owner of a copyright; or
- a licensee of such a patent, registered design or copyright (or of equivalent rights under a foreign law).
As a consequence, a deduction may be available for the decline in value of these kinds of intellectual property rights, calculated over their "effective life".
Specifically excluded are other forms of intellectual or industrial property such as trademarks (to the extent they do not include copyright), plant breeders rights, customer lists and confidential information.Patient records as intellectual property
Patient records are typically written records made by a health professional.
The Australian Copyright Act protects, among other things, original written works. There is no system of registration of copyright in Australia. Copyright protection is free and automatic. There is no express requirement that the written work be of any particular literary quality, but it is generally accepted that the author must have expended a minimum degree of skill and effort in creating the work. For example, copyright has been found to subsist in columns of birth and death announcements in a newspaper. The owner of the copyright has the exclusive rights to, or authorise others to do, certain acts in relation to the work (e.g. copy it).
Depending on the nature of the record made (including how it was made (e.g. by person or by machine)), it is feasible that the creator of a patient record makes an original written work for the purposes of the Copyright Act and that copyright subsists in those patient records. Copyright may also subsist in the collection of these individual records in a database.Value of patient records
Assuming patient records are depreciating assets for the purposes of tax legislation, the next step is to calculate the decline in value of the patient records.
The expression "decline in value" is not defined, however the rate of the decline in value is generally calculated by comparing:
- the cost of the asset (which encompasses the consideration provided by the taxpayer to hold the asset and bring it to its present condition and location or the expenditure incurred to create the item), although it seems unlikely that any significant cost would exist if the asset was created by the taxpayer as opposed to being acquired from a third party; with
- its "effective life" which, in the case of copyright, is set by the tax legislation at 25 years.
The question then becomes whether the cost of the asset is the cost of:
- the information contained in the patient records; or
- the copyright subsisting in the patient records.
That is, that the costs paid for the asset relate to the information conveyed in the records and not the physical properties of the records, namely the copyright in them. Similar issues have been addressed by the courts in distinguishing between the significant value of information acquired compared with the negligible value of the physical medium recording that information.
If the cost of the asset is properly characterised as the cost of the information, since "information" alone is not property for tax purposes it cannot be a depreciating asset (other than certain mining information which is specifically listed as depreciating asset) nor even a capital gains tax asset meaning there is no decline in value against which to claim the deduction.
It is up to the taxpayer to show that the entire cost claimed is in respect of the copyright in the patient records, being the depreciating asset, and not in respect of the information the patient records contain in order to claim a deduction.