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Budget 2021’s patent box scheme to boost Australian medical & biotech innovations, but is it too limited?

A $206.4 million so-called ‘patent box’ scheme aimed to encourage development, investment and innovation in Australia’s medical and biotech technologies has been introduced in the Federal Government’s 2021 Budget.

Set to begin on 1 July 2022, the patent box will find corporate profits derived from Australian developed and patented medical biotech innovations taxed at a 17 per cent effective concessional rate. The normal tax rate for corporations has previously been 30 per cent and 25 per cent for small and medium-sized companies.

Only patents applied for after Tuesday’s Budget announcement will be eligible. Patent box OECD guidelines will be used to ensure international standards are met, with close consultation with industry in determining the patent box design and whether the patent box can be expanded to effectively support the clean energy sector.

The patent box is expected to cost the Government around $100 million annually. Australia now joins over twenty countries that already have patent boxes, including the UK, France, Netherlands and Portugal.

A Government-provided example of how a company can benefit with patent box-driven savings:

Watson Medical Technologies makes $180 million in net income from selling a product that contains knowhow covered by a single patent.

$175 million relates to the patent and $5 million relates to other attributes, such as branding. As the company conducted 80 per cent of the patent’s research and development in Australia, Watson can include $140 million in the patent box, which is taxed at 17 per cent. The remaining $40 million is taxed at 30 per cent.

With the patent box Watson Medical Technologies will pay a total $35.8 million in tax, compared to up to $54 million without.

A welcome move, but why so limited?

While a number of sectors are pleased to see the Government present the long-awaited incentives, there is a call by many to push a patent box across more areas than medical and biotech.

Said Australian Information Industry Association (AIIA) CEO Ron Gauci: 

“We are pleased that the Morrison Government has taken our recommendation to implement a patent box, ensuring that business is able to receive tax incentives to ensure that IP is developed locally. It’s understandable that MedTech and BioTech are the first beneficiaries, we will work to ensure that these incentives are extended to other areas of the ICT industry.”

Angela Logan-Bell, Director Strategic Partnerships and Alliances APJ at Rackspace Technology, said that although the incentive scheme was “a great win for local R&D activities,” the commitment does not go far enough.

“There’s no doubt of the importance medical and biotech innovation contribute to our society, but what we need is economical support from the ground up for all tech start-ups – including a policy review to allow tech start-ups to be able to break through government red tape. Fostering this level of innovation will bring about growth in the tech industry and reduce the length of development. With patents already taking up to seven years or so to be approved, it’s inhibiting our tech start-ups now,” Ms Logan-Bell said.

“To effectively scale and be on the world stage, we should be offering tax incentives beyond one industry. Australia has every opportunity to become an incubation for development and lead the way and work as a growth region for tech jobs and digital transformation. 

“In the US, it’s a badge of honour for universities, businesses and local governments to be associated with successful start-ups. In Australia we only hear about start-ups once they reach success overseas. For the likes of Afterpay or Canva, it wasn’t till they grew internationally that we embraced them. We need to back our tech start-ups – and that starts from the top.”

CEO of payment solutions company Assembly Payments Tim Dickinson had similar sentiments.

“It’s fair enough that the government wants to strongly incentivise all medical and biotech innovation staying in Australia during a global pandemic. But it needs to think outside of the box, and broaden this policy. Many other sectors, including fintech, could greatly benefit from this measured tax break. If the past 18 months have shown us anything, it’s how small the world truly is. Continued interactions through digital-first innovation will be key to our shared future, no matter how challenging.”

Find more of our BUDGET 2021 coverage right HERE.

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Guillermo Troncoso

Guillermo Troncoso

Guillermo is the Editor of Dynamic Business and Manager of film &amp; television entertainment site ScreenRealm.com. Follow him on <a href="https://twitter.com/gtponders">Twitter</a>.

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