Australia’s 2021-22 Federal Budget – A Win for Medical and Biotech Companies

On Tuesday night Australian Treasurer Josh Frydenberg handed down the 2021-22 Federal Budget.  That budget focused on what will be the Government’s core priorities for 2021-22.  Amongst those priorities, specific focus was given to essential services, childcare, job creation, infrastructure, education and training, small business and the environment.  Importantly, the budget also paves the way for Australia’s economic recovery following the COVID pandemic, with a specific focus being given to technology innovation.

From July 2022 the Government is looking to introduce tax incentives for medical and biotechnology technology companies, research institutes, and start-ups to drive and stimulate commercialisation of R&D from innovative research.

The tax incentives will be introduced by the establishment of a “patent box” system offering tax breaks specifically targeted at income derived from new medical and biotechnology patents.  Treasurer Frydenberg also postulated a possible extension of this system to the clean energy sector.

By adopting the patent box, Treasurer Frydenberg hopes to bolster investment support for medical and biotech technologies in Australia with the aim of encouraging businesses to undertake their R&D and maintain their medical and biotech business in Australia.

The Patent Box

The “patent box” is likely to cost the government about $100 million annually and will follow OECD’s guidelines ensuring the system meets internationally accepted standards.  It will offer a competitive tax rate for profits generated from Australian-owned and developed medical and biotechnology patents.

Corporate income derived from new medical and biotechnology patents developed in Australia will be taxed at a corporate tax rate of 17 per cent– almost half the rate that applies to large companies.  Currently, the corporate tax rate for large companies is 30 per cent and 25 per cent for SME.

Over the next 12 months, the government will consult industry about the design of the patent box.  What we do know about the system is that only granted patents, which were applied for after the budget announcement, will be eligible.

According to the budget papers, 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”.

Stimulating additional investment and innovation

The patent box scheme complements the Government’s $2 billion investment in the Research and Development Tax Incentive, announced in the 2020‑21 Budget. The Board of Taxation will review the administrative framework for the research and development tax incentive (RDTI) before the end of 2021.

The budget also rolled out a new Global Science and Technology Diplomacy Fund, which is to be allocated $54.2 million over four years, with $8.2 million released annually. The new Fund will be directed towards “strategically important science and technology collaborations with global partners”.

The government will also invest $42.4 million over seven years into the Boosting the Next Generation of Women in STEM program, which is a new initiative that will offer co-funded scholarships for women in STEM in partnership with the private sector.

The Government’s patent box system has been a much-awaited investment in medical research and biotechnology.  It provides a clear focus on the strategic importance of IP protection and investment in the medical research and biotechnology field.  Seemingly this budget aims to position Australia as a global player in the technology, innovation, and commercialisation landscape, particularly in the field of medical research, biotechnology.

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