The Australian Government has announced the introduction of a Patent Box system to commence from 1 July 2022 with the aim of encouraging the development and commercialisation of innovative medical and biotech technologies in Australia.

In brief, the system will provide a significant reduction in the corporate tax rate from the current 30% rate for larger companies and the 25% rate proposed for SMEs, to a concessional rate of 17% on income derived from Australian patents granted to local companies for inventions in these fields.

However, the system will only apply to granted patents that were applied for after the Federal Budget announcement on 11 May 2021. The Australian patent office (IP Australia) has indicated it is believed that eligibility will apply to patents with an earliest priority date (as distinct from a filing date) that is post 11 May 2021, though this point is expected to be clarified once further details on the system are released by Treasury in the near future as part of a public consultation process.

Whilst the final details and eligibility criteria of the system are not yet known, the introduction of the system will bring Australia into the club of significant competitors including the United Kingdom, France, Spain, The Netherlands and Belgium which already have Patent Box or similar systems to not only encourage local innovation but also, to attract the relocation and set-up of innovative companies, and retain R&D activity in their own jurisdictions. Compared to the proposed Australian Patent Box system, the effective concessional tax rates offered by overseas such systems appear from our initial investigations to be somewhat lower.

Time will only tell whether the Australian system will facilitate the above aims and generate investment and job creation in the fields of medical and biotech innovation in Australia.

Whilst the scope of the currently proposed Patent Box system is relatively targeted, the government has indicated it will consult closely with industry on the design of the system and whether to expand the system as an effective way of supporting the clean energy sector.

We will continue to watch developments in this area with interest!