The federal government has pledged $206.4 million for a so-called ‘patent box’ tax incentive scheme, designed to encourage investment in medical and biotech innovation.
Income derived from Australian medical and biotech patents that are Australian-owned and have been developed locally will be taxed at a concessional rate of 17%.
That’s considerably lower than the standard 30% corporate income tax rate, or the 25% rate for SMEs.
The scheme is set to come into effect from July 1, 2022, and the concession will be available for patents that are applied for after the budget announcement at 7.30pm on Tuesday, May 11.
It is only available for patents that have been granted.
The 17% tax rate will also only apply to income derived directly due to the patent. Income from manufacturing, branding and other attributes will be taxed at 30%.
The patent box scheme is intended to encourage businesses to keep their R&D activities in Australia, and to keep patents registered here.
The requirement of organisations to develop their patents in Australia is designed to encourage additional investment in R&D activity, to boost hiring in the sector, and to encourage further application of the innovations in Australia.
The government will consult with industry before finalising the design of the patent box program, the budget papers noted.
It will also consult as to whether the measure could also be used to encourage innovation in ‘clean technology’, however, there are few details on what that consultation would involve, or any time frame.
According to the budget papers, the measure builds on the governments JobMaker Plan. It is intended to complement the Research & Development Tax Incentive (RDTI), which saw a $2 billion boost in last year’s budget, which also rolled back a suite of controversial changes to the scheme.
While many industry commentators had hoped to see additional changes to the RDTI scheme, including more clarity for software startups, and even a whole new software-focused scheme, that has not been on the government’s agenda this year.
The government has asked the Board of Taxation to review the administrative framework of the RDTI scheme before the end of the year.
This patent box scheme is one of several budget initiatives designed to encourage innovation and investment.
Ahead of the budget announcement, Treasurer Josh Frydenberg announced businesses will be able to self-asses intangible assets, including things like patents, design and software, for depreciation purposes.
The local video games industry is also set to receive a 30% refundable tax offset for qualifying expenditure.