Intellectual property (IP) can be a valuable asset for corporations. It can be protected through patents, trademarks, copyrights, and other forms of legal protection. However, owning and managing intellectual property can also have significant tax implications for corporations. In this blog post, we will discuss the tax implications of intellectual property for corporations in Canada, with a specific focus on Toronto and Ontario.

What is Intellectual Property?

Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names, and images used in commerce. It is protected by various laws and regulations, including patents, trademarks, copyrights, and trade secrets.

Tax Implications of Intellectual Property for Corporations

Intellectual property can have significant tax implications for corporations. The most common forms of intellectual property that have tax implications are patents and trademarks.

Patents

A patent is a legal right granted by the government that gives the owner exclusive rights to make, use, and sell an invention for a certain period, usually 20 years. In Canada, the income earned from a patent is generally considered to be active business income, and it is taxed at the corporate tax rate. The income from a patent can be subject to the general corporate income tax rate, or it can qualify for a lower rate if it is eligible for the small business deduction.

Trademarks

A trademark is a symbol, design, word, or phrase that distinguishes one company’s goods or services from another. In Canada, a trademark is considered to be a capital property, and it is subject to the capital gains tax rules. If a corporation sells a trademark, it may be eligible for the lifetime capital gains exemption, which allows for up to $883,384 of capital gains to be tax-free.

In addition to the tax implications of patents and trademarks, corporations that own intellectual property may also be eligible for tax incentives, such as the Scientific Research and Experimental Development (SR&ED) tax credit. The SR&ED tax credit provides tax incentives to corporations that conduct scientific research and experimental development in Canada.

Conclusion

Intellectual property can be a valuable asset for corporations, but it can also have significant tax implications. Corporations that own patents and trademarks should carefully consider the tax implications of their intellectual property and consult with a tax professional to ensure that they are maximizing their tax benefits while minimizing their tax liabilities. Additionally, corporations that conduct scientific research and experimental development in Canada may be eligible for tax incentives such as the SR&ED tax credit. It is crucial for corporations to understand the tax implications of their intellectual property and to plan accordingly for their long-term tax strategies.