The introduction of Patent Box will see income derived in respect of Australian medical and biotech patents taxed at a concessional rate of 17% from the 2022-23 income year.
This may be extended to the clean energy sector. This could see such companies save up to 13% in income tax. The concessional income tax rate applies to the proportion of the research and development conducted in Australia (as opposed to overseas) and applies to patents included in the Australian Register of Therapeutic Goods (ARTG).
Income derived from a United States Utility Patent or from a patent granted under the European Patent Convention can also be included in the Patent Box, provided the patent relates to a substance or invention that is included in a good listed in the ARTG.
Taxpayers will be able to self-assess the effective life of certain depreciable intangible assets including, patents, registered designs, in-house software, licenses, and telecommunications site access rights. This may increase depreciation deductions for businesses after 1 July 2023.
Understanding & calculating the eligible income
Eligible income sources include:
- income from the sale of a therapeutic good linked to the patent and the income generated by it prior to its sale
- royalties or license fees from the grant of a right to exploit an invention covered by the patent and the income generated by it prior to its sale
- a balancing adjustment event relating to the patent
- compensation or damages relating to the patent (eg compensation for infringements).
The ‘R&D fraction’ must calculated to determine the amount of income that is eligible for the lower tax rate. A business may be able allocate all of its income from an eligible patent into the Patent Box where certain expenditure conditions are represented.
Patent-related income is non-assessable and therefore, identified as non-exempt (NANE) income.
We’re ready to help. Understand your position on patent income, call our team +61 3 9820 6400.
