Note 10. Intangible assets

IR has intangible assets in the form of internally generated software, business process design and software licences. All of IR’s intangible assets have finite useful lives.

Internally generated intangible assets

There are 2 types of internally generated intangible assets: computer software configuration and business process design.

The cost of internally generated intangible assets comprises direct labour, materials purchased and an appropriate portion of relevant overheads. These costs are associated with the development of identifiable and unique software, and business processes controlled by IR, 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 procurement change management and training delivery are 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 IR’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.

Software licences

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

Additions

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

Amortisation

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 on initial measurement 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 and where appropriate for an individual asset these can be outside of the above ranges on initial measurement.

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

Impairment

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.

Estimating the useful lives of intangible assets

The useful lives of intangible assets are based on:

• management’s view of the expected period over which IR and/or the Government will receive benefits
• historical experience with similar assets
• anticipation of future events that may impact their useful lives such as changes in technology, government policy, regulations or legislation.

There is no restriction over the title of IR’s intangible assets, nor are any intangible assets pledged as security for liabilities. IR’s intangible assets are mainly related to the core revenue system and supporting infrastructure (START).

Of the $224.111 million carrying value for intangibles, $214.246 million relates to the development of START and supporting infrastructure assets. The estimated remaining life of the START assets is 7 years.