On 10 February 2022, the Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022 was introduced to the Australian parliament, and received its first and second readings in the House of Representatives. The Bill represents the fulfilment of an undertaking in the Federal Government’s 2021 budget to introduce a ‘patent box’ scheme to encourage innovation and commercialisation in the Australian medical and biotechnology sectors. A ‘patent box’ (the name refers either to an actual box on a form, or to a notional box into which a company allocates a proportion of its income) is a tax incentive scheme under which income that can be directly attributed to the commercialisation of patented technology (as distinct from other attributes, such as branding, know-how, or manufacturing capability) is taxed at a reduced rate.
Under the scheme established by the legislation, the minimum concessional tax rate is 17%, compared with the normal corporate tax rate of 30% for large companies, or 25% for small and medium enterprises (SMEs). However, the full benefit of the scheme is only available to the extent that R&D leading to development of a patented invention is conducted in Australia.
As the government had indicated in its original budget announcement, only medical and biotechnology inventions will be eligible for the patent box tax concession. In particular, a patent will be eligible if it is ‘linked’ to a therapeutic good included on the Australian Register of Therapeutic Goods (ARTG). This means that a product, which is covered wholly or in part by the claims of the patent, must be a therapeutic good (e.g. a pharmaceutical substance or medical device) that requires, and has received, marketing approval in Australia.
Interestingly, however, the patent relied upon as the basis for eligibility under the patent box scheme need not be an Australian patent. A patent will qualify under the scheme if it is an Australian standard patent (i.e. innovation patents are not eligible), a US utility patent, or a European patent granted under the European Patent Convention (EPC).
It was initially proposed that only patents having a priority date after the announcement would qualify. However, in further positive news, according to the Bill patents granted or issued after the date of the budget announcement (11 May 2021) will be eligible.
It is intended that the patent box concession will commence in the coming financial year, i.e. from 1 July 2022. However, for this to happen the legislation will need to be passed in both houses of parliament before federal election is called. It is widely anticipated that this will occur in early to mid April, shortly after the government hands down its budget on 29 March 2022. With no further sitting days scheduled prior to budget week, it could become a race against time to get the legislation through.
