The Taxation Of IP In A Nutshell

The tax aspects of holding, selling and licensing intellectual property may appear at first instance to be a confusion of rules further obscured by the jargon of accountants. Fortunately, the rules are few and the jargon easily explained. What follows is a brief summary of the taxation of patents, copyrights and trade-marks for the non-tax practitioner.

Capital Property, Inventory and Eligible Capital Property

In order to understand the tax treatment of patents, copyrights and trade-marks, one must first understand the distinction between capital property, inventory and eligible capital property. Briefly, a capital property generates income without being sold. Premises, tools and equipment are simple examples. Inventory, on the other hand, must be sold in order to generate income.