How might Australian businesses unlock a 17% corporate tax rate for their business: by participating in Australia's Patent Box Scheme?
The Australian Government's 2022-23 Budget includes an expansion to Australia's new (commencing from 1 July 2022) patent box scheme. Patent box schemes are an increasing phenomenon around the world. It's a way for governments to encourage investment in discreet areas involving technological advancement by applying concessional tax treatment to profits derived from eligible intellectual property.
Currently there are around 20 jurisdictions, including the UK, Singapore and many European countries with such regimes.
By reducing the corporate tax rate for corporations investing in these discreet areas (in some cases to as low as 10%), governments hope to attract greater levels of investment and ultimately increased levels of passive revenues and resulting taxes from companies basing themselves in their countries.
This year's federal budget expansion to the patent box scheme extends support for practical, technology-focused innovations in the Australian agricultural and veterinary sectors and for technologies which have the potential to lower emissions in line with the Government's target to achieve net zero emissions by 2050.
To be eligible, the corporate taxpayer must commercialise:
- a material listed in the PubCRIS (Public Chemicals Registration Information System) register; OR
- a plant variety protected by Plant Breeder's Rights (PBRs); OR
- an eligible patent for an agricultural and veterinary (AgVet) chemical product listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA).
Alternatively, the corporate taxpayer must commercialise a patented technology which has the potential to lower emissions.
Currently, profits on AgVet products, PBRs, patents on AgVet products and patents on emissions reducing technology are taxed at the corporate rate of 30% for large businesses and 25% for small enterprises. The patent box regime will reduce the income tax rate to 17% for PBRs and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. The tax concession only applies to eligible income, where the research and development of the innovation took place in Australia.
Australia's R&D Tax Incentive, which provides up to a 43.5% refundable tax offset for eligible research and development activities, means that this patent box regime expansion will provide an increased incentive to companies to conduct research and development in Australia.
Agriculture and emissions reducing technologies will be introduced into the patent box legislation after the Government has consulted with industry and settled the details of the expansion in the coming months.
It is estimated that $13.4 million will be delivered to eligible corporate taxpayers with PBR and AgVet patents over the 2022 to 2026 period, and will deliver another $66.2 million to eligible corporate taxpayers with emissions reducing patents over the same period.
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