The Federal Government has announced that it will introduce a "patent box" tax regime from 1 July 2022 to encourage investment and innovation in Australia in the medical and biotechnology sectors. The Treasurer had flagged the possible introduction of this regime back in 2019 whilst in the UK.
Under the proposed regime (which is very light on detail at this stage), income derived from Australian medical and biotechnology patents will be taxed at a competitive concessional tax rate of 17% (rather than the standard corporate tax rates of 25% or 30%, which depends upon the size of the company). The intention of the regime is to encourage companies to develop and apply their inventions in Australia rather than transferring their commercialisation offshore to other jurisdictions with more favourable taxation arrangements.
The Budget papers note that the Federal Government will consult with industry on the design of the new regime before it is finalised and will also consult industry on whether a patent box regime would similarly be an effective way of encouraging investment and innovation in the clean energy sector in Australia as well. One would expect further review and consultation around the interaction with the amended R & D provisions which come into effect on 1 July 2021 and whether the patent box regime should be limited to the medical and biotechnology sectors.
This will be an interesting space to watch closely as the design of the regime is finalised over the next 12 months.
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