Our team discusses the key measures in Australia’s 2022-23 federal budget that could help drive innovation, research commercialisation and business growth, along with related digital technology and employee share scheme initiatives.
Treasurer Josh Frydenberg has handed down Australia’s 2022-23 federal budget, which spruiked optimism amid the post-pandemic recovery, a global surge in inflation, and an unstable geopolitical landscape.
While much of the focus centred on easing cost of living pressures for Australians and the looming spectre of an election, the budget contained a range of measures to support Australia’s innovation agenda and ongoing business-led growth, including:
- Extension of the patent box regime to the agriculture and low emissions technology sectors to underpin innovation.
- A $2.2bn economic accelerator program to progress research past the initial stages of high risk and uncertainty, and into thriving businesses.
- $988m to support university research commercialisation by driving university and industry collaboration, workforce mobility and research translation.
- Investment in apprentices in critical roles.
- Reduced red tape for foreign investment.
- Expanding employee share schemes to make our innovation industries attractive internationally.
The budget also featured investments into industries and regions that are likely critical in ensuring the country’s future prosperity, including space, critical minerals, advanced manufacturing, and regional and Northern Australia.
In his address before parliament, Frydenberg emphasised that Australia needs to be a country:
“…where aspiration and enterprise are encouraged and rewarded. Where greater self reliance leaves our nation less vulnerable. Where our modern competitive industries create new jobs.”
The measures included in this budget support this rhetoric – time will tell if they are an accelerant for innovation to take off.
A high-level review
The key innovation announcement is the expansion of the proposed new patent box regime to not only the low emissions technology sector but also to the agricultural sector, with effect from 1 July 2023.
There are also significant levels of government funding being made available to Australia’s regions, targeting improved university collaboration and research commercialisation, critical infrastructure and other key industries, some of which have previously been announced.
From a digital perspective, the Government has also announced key initiatives such as a 120% deduction for digital investment through a Technology Investment Boost and a 20% reduction in external training costs through a Skills and Training Boost – targeted at small and medium businesses (an annual turnover of less than $50 million) to help the transition to increased digital operations.
|Our perspective |
The extension of the patent box regime to both the agricultural and low emissions technology sectors is a welcome announcement and will provide these critical sectors with significant opportunities. We look forward to continuing to engage in consultation with the Government on this key new development and the practical considerations needed to ensure it is successful.
Since both the initial patent box and Refundable Digital Games Tax Offset (DGTO) legislation are as yet unenacted, it is hoped that these measures are prioritised in the next Parliament regardless of the outcome of the forthcoming election. The previously announced Australia’s Economic Accelerator (AEA) program to turn leading research into business opportunities, and the University Research Commercialisation Action Plan, should help improve commercialisation outcomes in high potential areas that are crucial to Australia’s future (such as critical minerals, food and beverage, medical products, recycling and clean energy, defence and space).
We will continue to share our perspective on commercialisation frameworks with Government and work with universities and industry partners to facilitate collaboration.
Down to detail
Patent box: Extended to agriculture and low emissions sectors
It was announced that the proposed patent box regime will be extended to encompass the low emissions technology sector. This will support the Government’s technology-focused approach to reducing emissions in line with the target to achieve net zero emissions by 2050.
The regime will also be extended to support practical, technology-focused innovations in the Australian agricultural sector. The Budget papers also reflect changes made to the initial patent box announcement for Australian medical and biotechnology patents in the Federal Budget 2021-22 that have arisen through consultation and are encompassed in the relevant legislation now before Parliament.
The introduction of an Australian patent box regime is intended to support the onshore commercialisation of innovative developments in Australia by offering a globally competitive tax rate for profits generated from eligible Australian owned and developed patents.
Eligible corporate income streams for all proposed sectors under the patent box regime will be subject to an effective income tax rate of 17% to the extent that the research and development (R&D) of the innovation took place in Australia, thereby satisfying the modified-nexus requirements of the OECD. This treatment will provide a reduction of 8% from the headline rates of corporate tax for base rate entities (BREs), and 13% for all other companies, with the eligible income proposed to be treated as non-assessable non-exempt (NANE) income.
The following table summarises the key proposed dates for the now expanded patent box regime:
|Sector||Income years||Eligible patents|
|Medical and biotechnology||Starting on or after 1 July 2022||Granted or issued after 11 May 2021|
|Low emissions technology||Starting on or after 1 July 2023||Granted or issued after 29 March 2022|
|Agricultural||Starting on or after 1 July 2023||Patents or Plant Breeders Rights (PBRs) granted or issued after 29 March 2022|
The Budget papers confirm that patents within the expanded sectors that are likely to be eligible are:
- Those relating to low emissions technology in the 140 technology areas listed in the Government’s 2020 Technology and Investment Roadmap Discussion Paper, or included as priority technologies in the Government’s 2021 and future annual Low Emissions Technology Statements provided that the patented technology is considered to reduce emissions.
- those linked to agricultural and veterinary (agvet) chemical products listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA), PubCRIS (Public Chemicals Registration Information System) register, or eligible Plant Breeder’s Rights (PBRs).
As with the initial medical and biotechnology phase of the patent box regime, the Government will consult with the relevant industry stakeholders before settling the detailed design of the patent box expansions.
Australia’s Economic Accelerator (AEA) to turn leading research into business
As previously announced on 1 February 2022, a $1.6 billion economic accelerator will form a critical part of a $2.2 billion package to commercialise six National Manufacturing Priorities (NMPs), including resources and critical minerals, food and beverage, medical products, recycling and clean energy, defence and space.
By prioritising projects with high commercial potential under these six priority areas, the AEA’s provision of venture capital will help progress early-stage research past the initial stages of high risk and uncertainty, turning research ideas into thriving businesses that will contribute to a stronger Australian economy. The AEA will also work in collaboration with CSIRO’s Main Sequence Ventures, which will also receive a new $150 million boost to fund its expansion.
The AEA will provide funding in three stages:
- Stage one being a proof-of-concept phase that will offer nearly 100 grants per year of up to $500,000
- Stage two as a proof-of-scale phase will provide funding for 36 recipients of up to $5 million
- Stage three will see up to 50 companies supported through Main Sequence Ventures, where $150 million will be provided in two successive co-investment funds
Linked with the University Research Commercialisation Action Plan, it will be supported by investment of $296 million in industry-focused PhDs and fellowships, expected to generate 1,800 PhDs and over 800 industry fellows over a ten-year period, intended to place innovation “at the core of our economic future as nation”.
University Research Commercialisation Action Plan
Also announced on 1 February 2022, the University Research Commercialisation Action Plan will provide $988.2 million over five years from 2021-22. The Action Plan is intended to increase research commercialisation by driving university and industry collaboration, workforce mobility and research translation. The proposed funding will encompass the following:
- $505.2 million over five years from 2021-22 to establish AEA grants to support university research projects from proof-of-concept and proof-of-scale through to commercialisation. Under the AEA, the funded projects will align with the NMPs and will be in partnership with industry
- $295.2 million over five years from 2021-22 to establish new research training pathways for students and researchers, creating opportunities to work with industry through new Industry PhDs and fellowships, and delivering reforms to the Australian Research Council’s Linkage Program from 2026-27
- $150.0 million in equity funding over five years from 2021-22 to expand the Commonwealth Scientific and Industrial Research Organisation’s (CSIRO) Innovation Fund (Main Sequence Ventures). The venture capital investment will progress AEA projects with high commercialisation potential to reach at scale test and prototype stages
- $37.4 million over four years from 2022-23 to establish the CSIRO’s Research Translation Start program to take research from the lab into the market by building the entrepreneurial capacity of the workforce with a focus on the NMPs.
Regional Accelerator Program (RAP)
The Government has also identified 12 programs where it will specifically target Government investments through a $2 billion Regional Accelerator Program (RAP) to further grow Australia’s regional communities. The proposed funding over the next four years to 2025-26 will include the following:
- A $500 million Regionalisation Fund for regional manufacturers intended to enhance Australia’s international competitiveness by assisting regional manufacturers to translate ideas into commercial success.
- A $200 million Supply Chain Resilience Initiative.
- A $200 million Critical Minerals Accelerator Initiative over five years, which will provide grants to assist Australian critical minerals producers advance projects through planning, design, pilot and demonstration phases.
- The $500 million Modern Manufacturing Initiative (MMI).
- An additional $100 million for Export Market Development Grants (EMDG).
- An additional $60.4 million for the Recycling Modernisation Fund over the next four years, to support further regional investment in the recycling of plastics, tyres, paper and glass.
As part of the commitment to critical minerals, the Government has also allocated $50.5 million over three years from 2022-23 to establish a virtual Critical Minerals Research and Development (R&D) Centre which will also assist in building Australian intellectual property in critical minerals processing and help create a competitive Australian critical minerals industry.
Taking innovation to regional hubs and Northern Australia
The Government has further committed $7.1 billion over 11 years from 2022-23 to support the economies of the following four key regional hubs across Australia:
- The Northern Territory – aiming to fund infrastructure projects that support the manufacturing industry, promote the onshore processing of critical minerals and to strengthen the region’s position as an industrial and renewable energy hub.
- North and Central Queensland – aiming to invest in water infrastructure and supply chain projects that promote water security and open up agriculture and industry growth opportunities.
- The Pilbara region in Western Australia to fund infrastructure projects that support the mining, mineral processing and manufacturing sectors and accelerate growth in the hydrogen and renewable energy industries.
- The Hunter region in New South Wales – aiming to fund transport infrastructure projects that will improve supply chain efficiencies and help diversify the economy, building on the region’s existing strengths and facilitating the development of new industries.
The proposed investment funds will be targeted at strategic infrastructure and supply chain projects that will drive long-term economic and jobs growth in both existing and emerging industries.
The Government also will continue to drive investment in Northern Australia’s agriculture, mining, education and tourism sectors by increasing funding for the Northern Australia Infrastructure Facility (NAIF) by $2 billion, to $7 billion.
Other measures – making innovation start-ups more attractive, competitive and inclusive
The Government will expand access to employee share schemes and further reduce red tape so that employees at all levels can directly share in the business growth they help generate. Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:
- $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70% of dividends and cash bonuses; or
- Any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.
The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.
As part of its desire to reform Australia’s regulatory landscape, so as to ensure that the national economy “remains productive, competitive and agile”, the federal government is pledging $11.2 million over five years to continue work in reducing the regulatory burden for business arising from compliance with mandatory safety and information standards under Australian Consumer Law.
And to support female founders and entrepreneurs, a commitment of $106.9 million has been allocated over 5 years from 2021-22 to further promote women in leadership. This includes $9.4 million over 5 years from 2021-22 to bring women into board positions, as well as funding for the Future Female Entrepreneurs program
Australia’s 2022-23 federal budget presents opportunities for Australian innovators and researchers in both the private and academic space to commercialise their intellectual property assets.
Griffith Hack is committed to working with our clients to take advantage of the measures included in this year’s budget, as well as working with Australian industry and the Federal Government to achieve innovation outcomes.
Our understanding of the way intangible assets and intellectual property in all its manifestations can underpin success, and our long track record in working with Australia’s innovation sector – large and small – place us in an ideal position to work with innovators. For more information or assistance, generally and particularly on the Government’s initiatives in the patent box regime, please contact us.