Taxpayers who use intellectual property (such as patents and trademarks) in their trade in the
production of income may obtain the right of such use in a number of different ways. The nature of
the transaction granting the taxpayer the use of intellectual property items determines the tax
treatment thereof. Taxpayers may be able to claim deductions for the cost of using these items in
terms of specific income tax sections or the general deduction formula as outlined by the Income
Tax Act 58 of 1962. There are also a number of other sections in the Act which may affect the
timing and extent of the deductions allowed.
This article investigates the various income tax deductions which may be available to taxpayers in
South Africa who make payments in respect of intellectual property. It considers the effect of
important recent case law and changes to tax legislation on the timing and extent of these
deductions and suggests a framework which can be applied to assist the taxpayer in
understanding the structure of such deductions.