Goodwill vs other intangible assets

When you buy a business, part of the price may go to things you cannot touch: the name, the customer relationships, a licence, the reputation. It might seem natural to call all of this goodwill, but accounting and tax treat goodwill and other intangible assets differently. The difference starts with whether the asset can be separately identified. This page compares them using the IFRS standards, CBV Institute’s glossary and the Canada Revenue Agency (CRA). It describes the rules, not a treatment for any particular purchase.

What goodwill is

CBV Institute’s glossary defines goodwill as an intangible asset representing future economic benefit arising from a business or a group of assets that is not individually identified or separately recognized. In IFRS terms, goodwill acquired in a business combination is accounted for under IFRS 3 and is outside the scope of IAS 38. Internally generated goodwill is within the scope of IAS 38 but is not recognised as an asset, because it is not an identifiable resource. The CRA notes that a sales agreement may attribute an amount to goodwill, alongside prices for each asset.

What other intangible assets are

IAS 38 describes an intangible asset as an identifiable non-monetary asset without physical substance. It is identifiable when it is separable, or when it arises from contractual or other legal rights. Whether a trademark, licence or franchise meets that test depends on the item and the rights behind it. IAS 38 says an intangible asset with a finite useful life is amortised and subject to impairment testing, while one with an indefinite useful life is not amortised but is tested annually for impairment. It also says internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets.

Where they differ for accounting

• Identifiability: other intangibles are separable or arise from legal rights; goodwill is not individually identified.
• Standard: acquired goodwill falls under IFRS 3, outside IAS 38, while other intangibles fall under IAS 38.
• Amortisation: IAS 38 amortises an intangible asset with a finite useful life and does not amortise one with an indefinite life.
• Impairment: the IFRS summary of IAS 36 states that an impairment loss for goodwill is never reversed, while for other assets it is reversed when the circumstances that caused it are favourably resolved.

Where they differ for tax

The CRA’s capital gains guide describes eligible capital property, the category used before 2017, as property that does not physically exist but gives a lasting economic benefit, with goodwill, customer lists and trademarks as examples. Its capital cost allowance (CCA) guidance says that, starting January 1, 2017, property that is goodwill goes in Class 14.1. Class 14 includes patents, franchises, concessions or licences for a limited period. Franchises, concessions or licences for an unlimited period may qualify for Class 14.1 after 2016. The CRA places patents, or a licence to use patents for a limited or unlimited period, acquired after April 26, 1993 in Class 44, although you can elect not to include such property in Class 44.

Which treatment applies depends on…

These are conditions, not recommendations. If the business follows IFRS, then the standards above are relevant; ask its accountant which framework applies. If the item was acquired rather than built internally, then it may be recognised where an internally generated one would not. If an intangible has a limited life, then it is treated differently from one with an unlimited life. If the deal is an asset sale, then the sales agreement may allocate an amount to each asset and to goodwill. For goodwill on its own, see goodwill. An accountant can confirm the tax class of each acquired item.