In last week’s federal budget, the Government announced it will expand its patent box regime to include agricultural sector innovations and low emissions technology.
The highly anticipated patent box scheme was initially announced in May 2021, with the Federal Government introducing draft legislation into Parliament on 10 February 2022. The scheme previously only applied to medical and biotechnology sectors, and the extension is a welcomed tax concession for the agriculture industry, although it is narrow in its application.
The patent box regime is intended to apply for income years on or after 1 July 2023 and will effectively result in a concessional income tax rate of 17% for ordinary income derived from eligible patents (applies to patents granted after 29 March 2022). This is a decrease from the corporate tax rate of 30% or 25% for SMEs.
To be eligible, the corporate taxpayer must commercialise a plant variety protected by Plant Breeder’s Rights (PBRs) or an eligible patent for an agricultural and veterinary (agvet) chemical product listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA) or PubCRIS (Public Chemicals Registration Information System) register. Alternatively, the corporate taxpayer must commercialise a patented technology which has the potential to lower emissions.
This initiative aims to incentivise innovation and support the commercialisation of Australian-developed technologies. It will encourage significant development and investments in the agriculture industry while allowing the benefits to be retained within Australia. Including low-emission technologies also steps towards the Government’s pledge to meet net zero by 2050.
However, in practice, the tax break offered by the patent box is likely to only be accessible to a small subset of innovative agriculture businesses focused on the development of new plant varieties and chemical products. Extending the regime to cover a broader range of patentable agtech technology would go further towards encouraging research and development of agtech on Australian shores, and would bring Australia’s regime closer to the industry-agnostic equivalent patent box regimes in many European countries.
The benefits of the patent box will also not be seen until a profit is generated, often years after commencing R&D projects. The scheme is, therefore, more likely to be of benefit to large agribusinesses which are able to commercialise and profit from agtech products more quickly.
We keenly await further details of the patent box expansion as the Government consults with the agriculture industry.