budget 2021 web article

The federal budget demonstrates a commitment to research, innovation and technology – but to take full advantage, greater utilisation of Australia’s world class intellectual property (IP) system is required.

Treasurer Josh Frydenberg has handed down a 2021-22 federal budget that is focused on bolstering Australia’s economic recovery amid the fallout of the COVID pandemic. 

The broad-ranging budget places a significant emphasis on job creation and essential services, with childcare, aged care, infrastructure, education and training, small business, environment and housing figuring prominently.

But they weren't the only winners. Technology companies, emerging industries, researchers, and start-ups can also look at last night's announcement with a sense of optimism. Proactive measures to support innovation and business growth, and to address skills shortages, have been addressed, providing a once in a lifetime opportunity for Australia to technologically reposition itself on the global stage.

Of note, areas such as clean energy, artificial intelligence, digital economy, agribusiness, drone technology and technical skills-based training have all received substantial investment. Generous tax incentives also feature prominently, including the introduction of a “Patent box” aimed at reducing taxes on income from innovative research.

Key highlights in more detail

Patent box: Encouraging Australian medical and biotech innovation

Investment in Australian medical and biotech technologies is being supported by the introduction of a patent box. The patent box will reduce taxes on income from innovative research to encourage businesses to undertake their R&D in Australia and to keep the revenue that patents generate in Australia. 

From 1 July 2022, the patent box will tax income derived from Australian medical and biotech patents at a 17 per cent effective concessional corporate tax rate. Normally corporate income is taxed at 30 per cent or 25 per cent for small and medium companies. Only granted patents, which were applied for after the Budget announcement, will be eligible.

The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards. The Government will also consult closely with industry on the design of the patent box to determine whether a patent box is also an effective way of supporting the clean energy sector.

This measure complements the Government’s $2 billion investment in the Research and Development Tax Incentive which was announced in the 2020‑21 Budget. The Government has asked the Board of Taxation to review the administrative framework of the R&DTI before the end of 2021.

Stimulating innovation in Australian businesses

The Government will allow taxpayers to self-assess the effective life of certain depreciating intangible assets for tax purposes, rather than being required to use the effective life currently prescribed by statute. This will apply to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.

Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life than the current statutory life. This change will reduce the cost of investment for business, and align the tax treatment of these intangible assets with the treatment of tangible assets. Taxpayers will continue to have the option to use the existing statutory effective life when depreciating these assets.

This will apply to eligible assets acquired following the completion of temporary full expensing, which has been extended and will now end on 30 June 2023.

Growing the Australian digital games industry

Australia’s digital games industry has been bolstered by a “digital games tax offset” that will cut the costs related to game development. Digital game developers will receive a 30 per cent refundable tax offset, capped at $20 million per year, for qualifying Australian games expenditure. The global digital games industry provides significant opportunities for Australia and this tax offset will make Australia an attractive destination for digital talent.

Why this budget highlights the value of strategic IP protection

Investment in commercialised sectors such as medical research, biotechnology and clean energy provides a timely reminder of the importance of strategic IP protection to take full advantage of these investments.

Australian governments have long strived to align Australia’s IP protection systems with the most robust in the world. The objective of several significant legislative changes has been to ‘support innovation by encouraging investment in research and technology in Australia and by helping Australian businesses benefit from their good ideas’.

But while Australia now has a world class IP system, not enough Australian businesses are using it. Recent evidence suggests that the Australian patent filings market is experiencing sluggish growth with both locals and foreign filers cutting back on their investment in Australian patents. Australia risks entering the post-pandemic period significantly lagging other countries when it comes to the generation of home-grown IP. Prioritising innovation now is key to assist in our economic recovery.

Summary

Australia’s 2021-22 federal budget presents an opportunity for businesses in Australia to invest in, protect, and maximise the value from R&D and innovation. With the global economy in a fragile state after a tumultuous 12 months, and with a strong knowledge economy, Australia is well-positioned to better establish itself as a major global player in the technology, innovation and commercialisation landscape. 

Our experts will provide ongoing in-depth analysis on specific topics featured in the federal budget. To stay up to date, subscribe to our email list. If you have questions for our team about the impact and opportunities of the federal budget, or strategic IP protection, please contact us at enquiries@griffithhack.com.au.

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