In Tuesday’s Federal Budget, Treasurer Josh Frydenberg announced the introduction of a ‘patent box’ scheme for Australia’s medical and biotechnology industries.
Businesses that tick the patent box will be taxed at a concessional rate of 17% on profits generated from eligible patented innovations. This concessional rate is a significant reduction, given profits derived from Australian patents are usually taxed at the corporate tax rate of 30% for large businesses, or 25% for small to medium enterprises.
Under the new regime, businesses will be eligible to benefit from the concessional tax rate in relation to profits generated from a medical or biotechnological innovation, provided that:
- the innovation is Australian owned and developed;
- an application to patent the innovation was filed after the Budget announcement; and
- the patent has been granted.
The Budget papers indicate that the concessional rate will apply to ‘income due to the patent’, but not ‘income due to manufacturing, branding and other attributes’.1
The concessional rate will apply to income years starting from 1 July 2022, and is expected to cost the Government $100 million annually.
Already a feature of various overseas jurisdictions, the introduction of the patent box scheme brings Australia into line with international practices and promotes onshore research, development and commercialisation. Specifically, the regime aims to:
- encourage the development and application of patentable innovations in Australia;
- support the commercialisation and retention of Australian innovations in Australia;
- assist Australian businesses to turn ideas and innovations into profitable businesses;
- stimulate investment and hiring in research and development in Australia;
- attract global business and talent; and
- ensure the Australian tax regime can compete internationally.
The Government has announced that it will conduct industry consultations before providing further details relating to the patent box. We anticipate these details will include guidance on what will qualify as a medical or biotechnological innovation and how profits will be assessed to determine whether they are ‘due to’ Australian patents.
The Government will also consider whether the scheme could be extended to include the clean energy sector.
Our experienced Intellectual Property and Taxation teams can assist with all IP and taxation matters. Please contact us if you would like to find out more about taking advantage of the patent box regime, or if you would like advice regarding IP protection and relevant tax implications.
This article was written by Luke Dale, Partner, Nima Sedaghat, Partner and Kelly Williamson, Solicitor.
1 Treasury, Budget 2021-22 Tax incentives to support the recovery fact sheet (11 May 2021) Australian Government https://budget.gov.au/2021-22/content/factsheets/download/factsheet_tax.pdf.