Budget 2021: Tax breaks for Aussie patents – that’s an idea

Companies that develop patents in Australia will receive tax ­reductions under an initiative to promote manufacturing.

The patent box will apply to the medical and biotech sectors. Picture: iStock

Companies that develop patents in Australia will receive tax ­reductions under an initiative to promote the manufacturing sector and innovations in the medical and biotech sectors.

Dubbed the “patent box”, the initiative will see corporate profits taxed at a concessional rate of 17 per cent if the patents are ­developed in Australia. The scheme is expected to take effect on July 1.

Josh Frydenberg said the concession amounted to almost half the rate currently applying to large companies. He told parliament the scheme was also under consideration for expansion beyond its current scope.

“The patent box will apply to the medical and biotech sectors and we will consult on expanding it to the clean energy sector,” the Treasurer said. “Australia has 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.”

The concession is expected to cost the government about $6m over the forward estimates, ­according to the budget papers.

Officials said the move would hopefully encourage firms to ­transform their research and ­development innovations into “profitable businesses in Australia”.

Mr Frydenberg singled out manufacturing in his budget speech as a “key driver of future jobs and higher wages”.

In the October 2020 budget he announced a $1.5bn package to expand manufacturing ­activity and create jobs across six priority areas, including medical products and clean energy.

This was backed, he said, by a further $2bn in research and development tax incentives.