Note 10 - Intangible assets (2022)

There are 2 types of internally generated intangible assets: computer software and processes.

The cost of internally developed computer software and processes comprises direct labour, materials purchased and an appropriate portion of relevant overheads. These costs are associated with the development of identifiable and unique software controlled by Inland Revenue, which will generate future economic benefits beyond 1 year.

Expenditure on development activities, where research findings are applied to a plan or design for new or substantially improved processes, is capitalised if the processes are technically and commercially feasible. Any other development costs are expensed.

Costs incurred on research of an internally generated intangible asset are expensed. Where the research phase cannot be distinguished from the development phase, the total cost is expensed.

Costs associated with maintaining internally generated computer software are expensed. Costs of configuring and customising commercial off-the-shelf software are capitalised. Costs of configuring and customising software as a service arrangements are expensed.

Website development costs are recognised as an intangible asset if it can be demonstrated that the website will generate probable future economic benefits. Subsequent costs associated with the development and maintenance of Inland Revenue's existing websites are expensed unless they meet the capitalisation requirement of PBE IPSAS 31 Intangible Assets.

Staff training costs and change management costs are expensed.

Acquired computer software licences are capitalised on the basis of costs incurred to acquire and be able to use the specific software. Costs associated with supporting and maintaining computer software licences are expensed. The capitalisation thresholds for intangible assets are:

• internally generated intangible assets - over $20,000
• software licences - over $20,000.

Intangible assets are initially recorded at cost and subsequently recorded at historical cost less amortisation and impairment losses.

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its estimated useful life. Amortisation begins when the asset is available for use and ceases when the asset no longer has a recognisable value. The amortisation charge is expensed. The useful lives of major classes of intangible assets have been estimated as:

• internally generated intangible assets - 3 to 15 years
• software licences - 3 to 15 years.

Assets under construction are recognised at cost less impairment and are not amortised. The total cost of a capital project is transferred to the appropriate asset class on its completion and then amortised.

The assets' useful lives are reviewed and adjusted if appropriate at each balance date.

The gain or loss arising from the disposal of an intangible asset forms part of the surplus or deficit.

Intangible assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets are also reviewed annually for indicators of impairment at each balance date. Assets under construction are tested for impairment at each balance date.

For further details, refer to the policy for impairment of property, plant and equipment in Note 9. The same approach applies to the impairment of intangible assets.

The useful lives of intangible assets are based on:

• management's view of the expected period over which Inland Revenue will receive benefits
• historical experience with similar assets
• anticipation of future events, which may impact their useful lives, such as changes in technology or legislation.

¹ The actual results in the table above for 2021 have been restated following a change in the Crown accounting policy for software as a service (SaaS) arrangements. Refer to our section on changes in accounting policies on page xxx. ↩

There is no restriction over the title of Inland Revenue's intangible assets, nor are any intangible assets pledged as security for liabilities. Inland Revenue's intangible assets are mainly related to the core revenue system and supporting infrastructure (START). Of the $303.361 million carrying value for intangibles, $292.600 million relates to the development of the START tax and social policy management system and supporting infrastructure assets. The estimated remaining life of the START assets is 9 years.

Intangible assets are $152.706 million lower than budget, mainly due to capital contingency funding being returned to the Crown with the substantive closure of the transformation programme in 2021–22.