Income Tax Relief for Other Capital Expenditure

– in the House of Commons on 25th April 1944.

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In addition to my proposals for taxation relief for new expenditure on buildings, plant and machinery, it is proposed, in the measurement of profits, to provide allowances in respect of the cost of certain other kinds of industrial assets which are used up in the earning of profits. I take, first, the case of patent rights. Where a patent is acquired on the basis of the payment of a royalty, the royalty is income subject to deduction of tax, and the trader paying the royalty enjoys, in fact, full allowance in respect of the cost of the patent. But where the royalty is acquired by payment of a lump sum the lump sum is not treated as the income of the recipient, nor is any allowance made under the existing law to the trader in respect of the lump sum, though that expenditure is used up in earning profits over the life of the patent. When this subject has been examined in the past, as for instance by the Royal Commission on Income Tax, the two questions of charging the lump sum to Income Tax in the recipient's hands and writing off the expenditure in the buyer's accounts have naturally been linked together. I propose, as far as patent rights after the war are concerned, to maintain this link by providing for the writing off, during the life of the patent, of any lump sum paid by a trader in acquiring the patent, while making the sum payable for the patent rank as income in the hands of the seller, with suitable provision enabling him to spread that income over a number of years to avoid any hardship that might arise if it were taxed as the income of the year in which it is paid.

A similar issue arises in the case of leaseholds where the lease is granted on the payment of a premium in addition to a lease rent. The position of leaseholds is much more complicated, and while I should like to propose outright the application of a similar principle to that which I have outlined for patent rights, I must say no more than that this subject also will be further considered.

I propose also to introduce a depreciation allowance in the extractive industries, that is, in mines, oil wells, quarries and the like, where capital expenditure is incurred on various types of assets which are limited in life by the life of the mineral or oil deposits. New expenditure in respect of sinking shafts and the provision of surface facilities will qualify for an additional allowance on the same principle as new buildings, plant and machinery, and the balance of expenditure will be written off against subsequent profits.