Inside the Federal Government’s Patent Box
Key points
- The 2021-22 Federal Budget introduces a ‘Patent Box’ to reduce corporate tax (to 17%) on income derived from certain Australian patents.
- The Patent Box tax incentive seeks to stimulate Australian R&D and the commercialisation of technological innovations.
- The specific details of the Patent Box will be ironed out with industry consultation.
What is Patent Box Tax Relief?
To support Australia’s recovery from the pandemic, the 2021-22 Federal Budget emphasises the importance of investing in Australian research and development and the commercialisation of domestic innovations.
The announced Patent Box is a tax incentive scheme that allows income derived from certain patented technologies to be taxed at a reduced rate of 17%. The lower tax rate seeks to attract local and foreign businesses alike to develop, protect and commercialise their technologies in Australia.
“We want to see more innovation commercialised in Australia. Under the patent box, income earned from new patents that have been developed in Australia will be taxed at a concessional 17 per cent rate – almost half the rate that applies to large companies.”
The Patent Box does not fit all
At this stage, the Patent Box tax incentives only apply to medical and biotechnology patents, though the government may consider including the clean energy sector.
Additionally, the tax incentive only applies to granted patents that were “applied for after the Budget announcement”. There is currently no clear indication as to what is meant by “applied for”, although IP Australia has stated that to be eligible, the patent must have a priority date after 11 May 2021. This requirement may change after industry consultation.
Patent boxes encourage local innovation
By reducing tax rates on income derived from patented Australian technologies, a Patent Box scheme can transform the Australian economy and boost investments in local innovation.
Jurisdictions like the UK, the Netherlands and France also have Patent Boxes that aim to encourage innovative activity within their shores. We expect Australia’s Patent Box scheme will help Australia stay competitive and stimulate our medical, biotech and related industries.
Key takeaways
- The tax concession is proposed to apply from income years starting on or after 1 July 2022.
- Innovative companies, particularly those in the medical and biotech space, should plan their R&D, commercialisation and patent protection strategies well in advance; the patent application process can be lengthy — especially if the Australian Patent Office is flooded with new patent applications.
- There is some uncertainty as to when patent applications must be filed by to be eligible for the Patent Box tax incentive – these details are likely to be ironed out through industry consultation.
