Federal Budget 2021: ‘Patent box’ to spur biotech investment

Science and business sectors have welcomed a new targeted tax concession, which they say will help Australia take advantage of opportunities out of the pandemic.

The government’s initiative comes at a critical time for the local medtech sector. Picture: AFP

Australia’s science and business sectors are welcoming a new “patent box”, a targeted tax concession the government says should spur much-needed investment across Australia’s medtech and biotech industries.

Under the $206.4m scheme, income earned from new patents developed in Australia will be taxed at a concessional 17 per cent rate, nearly half the rate paid by large companies.

The regime will come into effect from July 1 2022, and will apply to all income derived from medical and biotech patents, with the government also to consider whether the scheme should also apply to Australia’s clean energy sector.

Australia’s technology sector has long been praised for its inventiveness, but has often fallen down when it comes to commercialisation and cashing in on research.

The initiative comes at a critical time for the local medtech sector, which will be hoping to capitalise on new attention — and funding — flowing as a result of the COVID-19 pandemic.

Profits generated by corporates are currently taxed at 30 per cent for large businesses, and 25 per cent for small and medium-sized businesses.

“The requirement for domestic development will encourage additional investment and hiring in research and development activity and encourage companies to develop and apply their innovations in Australia,” the budget papers said.

“The government will consult with industry before settling the detailed design of the patent box.”

Treasurer Josh Frydenberg said Australia had previously led the world with innovations like Wi-Fi, the bionic ear and a vaccine for cervical cancer.

“We want to see more innovation commercialised in Australia,” he said.

Liberal senator Andrew Bragg, who has been chairing a senate inquiry into fintech and regtech, said the patent box was one of the most important aspects of the budget for Australia’s tech sector.

“The Treasurer has instantly improved Australia’s competitive position,” he told The Australian. “He is maximising Australia’s chances of capitalising upon the tech opportunities falling out of the pandemic.”

The measure was welcomed by Business Council of Australia boss Jennifer Westacott, who said the budget would help position Australia to keep pace with the major global shifts of technological change and decarbonisation.

“We support new measures to help commercialise Australia’s great ideas and innovations through a new ‘patent box’ applying first to the medical and biotech sectors,” she said.

“This is a helpful step in promoting innovation in a critical sector of the economy.”

The patent box program is similar to one adopted by the UK, in which it reduced the tax rate to 10 per cent for companies that carried out the majority of their research and development in that country.

The government’s measure builds on its existing JobMaker Plan, according to budget papers, and complements the Research & Development Tax Incentive, which gained a $2bn boost in last year’s budget.

Originally published as Federal Budget 2021: ‘Patent box’ to spur biotech investment