19 May 2021 | Rebecca Currey Associate, Patrick Brown

The Australian Government has committed $206.4 million to a patent box tax incentive scheme to encourage investment in medical and biotechnology innovation.

Patent box schemes are a type of tax incentive where income from certain types of patents is taxed a preferential lower corporate tax rate. Australia will join over 20 other countries including the UK, France, China, Belgium and Switzerland in offering patent box type tax incentive schemes.

The scheme will come into effect from 1 July 2022 and will apply to granted patents that were filed after 11 May 2021. Although the details of the scheme are yet to be finalised, income derived solely from eligible granted Australian medical or biotechnology patents will be taxed at a concessional rate of 17 percent - the normal corporate tax rate is 30 percent or 25 percent for small-medium companies.

The new patent box will operate alongside other initiatives designed to encourage research and development in Australia, including the existing Research and Development Tax Incentive scheme that provides a tax offset for eligible R&D activities and which is anticipated to cost the government approximately $100 million per year.