Licence to Use or Right to Rule? Structuring IP Without Regret

When it comes to acquiring intellectual property — whether it’s software, a creative work, a trademark, or a patented idea — the question is deceptively simple: do you want the licence to use it, or the right to rule it?

In legal terms, the decision is between assignment and licence. But the implications are anything but academic.

This short legal update explores the legal pros and cons of each approach — and flags one particularly important commercial consideration: how the structure might affect your tax outcome. While tax advice must come from an appropriately qualified accountant, the legal structure you choose can play a meaningful role in how the ATO treats the transaction. And as lawyers, we make sure you’re thinking about these intersections before locking anything in.

Assignment: Legal Control With Long-Term Tax Considerations

An assignment is a full transfer of IP ownership. You’re no longer just using someone else’s rights — you’re taking the throne. You have legal title to the asset, and full control over how it’s used, commercialised, licensed or sold.

From a legal standpoint, an assignment gives you:

• Certainty and long-term control
• The ability to enforce or transfer the IP without restriction
• Asset ownership on your balance sheet

It also comes with responsibilities:

• Ongoing obligations to maintain, renew and protect the IP
• No easy exit — the deal is permanent unless otherwise negotiated

From a tax perspective, an assignment may result in the IP being treated as a capital asset — particularly where the rights acquired are long-term and substantial. In that case, the cost might not be deductible immediately and could instead be depreciated over time, depending on the effective life of the asset and other factors.

For example: imagine a business purchasing a large piece of plant or equipment for use in its operations. It’s typically not deductible in full upfront — it’s treated as a capital acquisition and depreciated over several years. Acquired IP that provides enduring control might, depending on the circumstances, be treated in a similar way.

Whether the cost is ultimately treated as capital or deductible revenue expenditure is a matter for your accountant — but the legal form of the transaction (assignment vs licence) is likely to be one important input into that analysis.

Licence: Flexible Access With Potentially Different Tax Outcomes

A licence gives you the right to use IP without taking legal ownership. You’re a user, not the ruler. The licence may be exclusive or non-exclusive, broad or narrow, perpetual or fixed-term — and every one of those terms will matter.

From a legal angle, licensing:

• Is typically cheaper and more flexible
• Allows you to walk away more easily
• Avoids the burden of ownership responsibilities

But it also means:

• You’re restricted by the scope of the licence
• You may be dependent on the licensor continuing to perform
• Your rights can expire, be revoked, or be overridden by other deals

From a tax perspective, licensing arrangements are often treated differently from assignments. Where the licence is limited in duration or scope — for example, a year-long, non-exclusive software licence — the associated fees may be classified as ordinary business expenses, and potentially deductible in the year incurred.

However, this isn’t guaranteed. If the licence grants substantial or enduring rights, or resembles an assignment in substance, it may still attract capital treatment.

In other words, the specific terms of the licence matter — as does the way it fits into your broader business activities. Your accountant is best placed to determine the likely treatment, but the way the licence is structured (and documented) may have a meaningful impact.

So, Licence or Rule?

Here’s the crux of it:

• If you need full, long-term control over IP that’s core to your business, assignment gives you the right to rule — but it may involve a longer-term tax outcome.
• If you need access without long-term commitment, licensing may be the smarter commercial move — and in some cases, it may offer more immediate tax deductions.

And here’s the crucial point: you don’t want to be making this decision in a vacuum. The legal form matters. The tax treatment matters. The business context matters. And all three should be working in sync.

Getting the Structure Right — Legally and Commercially

As lawyers, our role is to help you structure and document the IP arrangement properly — so your rights are clear, protected, and commercially sound.

But we also work hand-in-hand with accountants, tax agents and commercial advisors to make sure you’re not left regretting a decision that looked simple on paper but came with hidden consequences.

So whether you’re buying, selling, licensing or negotiating, don’t just ask: Can I use this IP?

Ask: Do I want the licence to use it — or the right to rule it?

And then get the right legal (and tax!) advice to back that up.

Navigating legal challenges in with your IP?

At Clearscope Legal, we cut through the jargon to provide straightforward advice. Reach out by email admin@clearscopelegal.com.au or on 03 8683 5645 and we’ll be happy to line up a free initial consult.