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Chapter 4: Determining the appropriate treatment of goodwill

Current arrangements

Under the existing taxation law acquired goodwill is not depreciated. Capital gains or losses are brought to tax upon disposal of goodwill.

Under accounting standards, acquired goodwill must be depreciated. Some overseas countries also allow goodwill to be depreciated for tax purposes.

Key policy issues

What is the most appropriate taxation treatment of goodwill?

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Reform options

Valuation of goodwill

Is goodwill a wasting asset?

Goodwill is objectively valued only in the context of a sale.

Valuing acquired goodwill on an annual basis for tax purposes would not be practical.

Option 1
To provide amortisation for the cost of acquired goodwill.

Option 2
To retain the current tax treatment of acquired goodwill.