Section 461 — Income Tax Act 2007: Spreading of patent royalty receipts

Spreading of patent royalty receipts 461 1 A person who makes a claim is entitled to a tax reduction for a tax year in which the person receives a payment of a royalty or other sum if—

a the payment is in respect of the use of a patent, b the use of the patent has extended over a period of two years or more, and c the payment is one from which a sum representing income tax is required to be deducted under section 903.

2 The amount of the tax reduction is the difference between—

a the amount of income tax payable by the person in respect of the payment, and b the total amount of income tax which would have been payable by the person in respect of the payment on the assumptions in subsection (3).

3 Those assumptions are that—

a the payment was made in a number of equal instalments at yearly intervals, b the last instalment was paid on the date on which the payment was in fact made, and c the number of instalments was the same as the number of complete years in the period over which the use of the patent extended, but subject to a maximum of 6.

4 The tax reduction is given effect at Step 6 of the calculation in section 23.