The federal government has maintained it will launch a limited patent box scheme next year despite not yet releasing draft legislation and there only being 10 more sitting days until the upcoming election.
This year’s federal budget included the establishment of a patent box scheme for medical and biotech innovations, providing a tax break for IP developed in Australia. The government plans to launch this scheme from July next year, and consulted on it from July.
The patent box will allow the corporate income derived from patents in the medical and biotech industries to be taxed at an effective corporate tax rate of 17 per cent, down from 30 per cent for large businesses and 25 per cent for smaller firms.
This will be at a cost of $100 million annually for the Commonwealth.
Despite the government’s consultation closing in August, the government is yet to release draft legislation, and the Coalition now only has 10 sitting days next year to pass the necessary bill before the federal election and the planned start date of the patent box.
But Treasurer Josh Fydenberg has maintained that the scheme is on track to launch in July, with draft legislation to be released early next year.
“Following the 2021-22 budget announcement, the government consulted publicly on the design of the patent box, including by publishing a discussion paper on the Treasury website,” Mr Frydenberg told InnovationAus.
“The government is considering the feedback received from stakeholders to maximise the effectiveness of the patent box. The government expects to release an exposure draft in the new year, with the regime to commence on 1 July 2022.”
Shadow industry minister Ed Husic criticised the government’s process in implementing a patent box regime.
“For a bunch of people who made a big song and dance about patent boxes, their follow up shows what they really think of the idea. As always, this government milks innovation for a media headline but is nowhere to be seen on the hard work of follow up,” Mr Husic told InnovationAus.
“Let’s not forget that they first looked at the idea of patent boxes in 2015, talked about it in 2019 and announced it in 2021. At this rate, it’s anyone’s guess when we’ll actually see the legislation.
“They’ve given themselves an early mark and will sit for just 10 days in the whole first half of the year. Bear in mind three of these days are for the budget. They’ve left themselves seven days next year to introduce the legislation. All talk, no action.”
The government’s consultation earlier this year revealed that the tax break will only apply to patents approved following the budget announcement in May this year, and to profits from the patented invention in proportion to the amount of R&D conducted in Australia.
The government is still deciding whether to apply a patent-level test on whether it is in the biotech or medtech sector, or an income streaming test, where all will be eligible but only the profits from the chosen sectors will receive the tax break.
The patent box scheme will also potentially be expanded to the low emissions technologies space.
The Opposition has raised concerns that the patent box is merely a “knee jerk reaction to embrace a new concept”.
“We’ll wait and see what the government says, but so far it looks like the patent box is a great innovation for company products and does not do very much in terms of innovative output. We have to see what’s going to happen there,” Mr Husic said earlier this year.
“This cannot simply be a method to reduce a tax bill. It has to have legitimate R&D outcomes that benefit the country. The Coalition does not have an organised approach to innovation in this country.”
The Chief Economist had similar concerns after it was tasked with investigating a patent box scheme in 2015 by the Coalition. The final report was lukewarm on the concept, saying that it may lead to a large decrease in tax revenue but not a corresponding increase in an incentive to invest in research.
Other organisations have called for the scheme to go even further. In a submission to government, the Australian Investment Council (AIC) said there is a “unique opportunity” to launch the scheme now, but reforms are needed to nearly all aspects of the proposal for it to be the global “gold standard”.
The AIC is pushing for the patent box to be opened to all of the government’s priority sectors under its manufacturing strategy, for patent filings from 2018 onward to be eligible, and for the tax rate to be reduced to 10 per cent for eligible patents.
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