Free Tax News Service Highlight

The government has introduced legislation to enact Australia's first patent box. The patent box was announced in the 2021/22 Budget, and the patent box rules are expected to become effective on 1 July 2022.

Under the rules, income earned from new eligible patents that have been developed in Australia will be taxed at a concessional rate of 17%. In order to be eligible for the concession, a patent must be linked to therapeutic goods entered in the Australian Register of Therapeutic Goods. This is to ensure the patent box concessions are targeted towards relevant medical inventions. Income of both Australian resident entities and permanent establishments in Australia will be eligible for the concession. The taxpayer will be allowed to apportion income from a parent between ineligible and eligible income based on the OECD transfer pricing principles.

The rules cover standard Australian patents, and following consultation will also cover patents issued by the United States Patent and Trademark Office or those granted under the European Patent Convention. Patents granted or issued after 11 May 2021 (i.e. Budget night) will be eligible, rather than only those filed after Budget night.

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