A Bill for an Act to amend the law relating to taxation, and for related purposes
The Parliament of Australia enacts:
1 Short title
This Act is the Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Act 2022.
2 Commencement
(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.
| Commencement information |
| Column 1 | Column 2 | Column 3 |
| Provisions | Commencement | Date/Details |
| 1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table | The day this Act receives the Royal Assent. | |
| 2. Schedule 1 | The first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent. | |
Note: This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act.
(2) Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.
3 Schedules
Legislation that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.
Schedule 1—Patent box
Part 1—Main amendments
Income Tax Assessment Act 1997
1 After Division 355
Insert:
Division 357—Patent box
Table of Subdivisions
Guide to Division 357
357‑A Object and basic concepts
357‑B Patent box income rules
357‑C Other matters
Guide to Division 357
357‑1 What this Division is about
This Division applies to R&D entities that make an election under this Division, and to certain patents linked to therapeutic goods included in the Australian Register of Therapeutic Goods. It defines certain income streams in respect of such patents to be patent box income streams.
Assessable income of an R&D entity that arises from a patent box income stream can be, to an extent, non‑assessable non‑exempt income.
Subdivision 357‑A—Object and basic concepts
Table of sections
Operative provisions
357‑5 Object of Division
357‑10 R&D entities covered by this Division
357‑15 Patents covered by this Division
Operative provisions
357‑5 Object of Division
The object of this Division is to encourage innovation and commercialisation of patented inventions in the medical and biotechnology industries to be undertaken in Australia by taxing income derived from those patented inventions concessionally.
357‑10 R&D entities covered by this Division
(1) This Division covers an *R&D entity if it makes an election in accordance with subsection (2).
(2) An *R&D entity makes an election in accordance with this subsection if:
(a) it makes the election in the *approved form; and
(b) it gives the election to the Commissioner.
(3) An election under subsection (2) cannot be revoked.
(4) An election under subsection (2) has effect in relation to an income year (the election year), and all later income years, if the *R&D entity made the election in accordance with that subsection before or at the time at which the R&D entity was required to lodge its *income tax return for the election year.
357‑15 Patents covered by this Division
(1) This Division covers a patent if:
(a) it is:
(i) a standard patent granted by the Commissioner of Patents under section 61 of the Patents Act 1990; or
(ii) a United States Utility Patent issued by the United States Patent and Trademark Office; or
(iii) a European patent granted under the *EPC; and
(b) either of the following is in substance disclosed in the complete specification of the patent and in substance falls within the scope of the claim or claims of that specification:
(i) a pharmaceutical substance (within the meaning of the Patents Act 1990);
(ii) an invention (within the meaning of that Act); and
(c) if subparagraph (b)(i) applies—a *therapeutic good covered by this Division contains, or consists of, the pharmaceutical substance; and
(d) if subparagraph (b)(ii) applies—a therapeutic good covered by this Division incorporates the invention.
(2) The *therapeutic good mentioned in paragraph (1)(c) or (d) is linked to the patent mentioned in subsection (1).
(3) EPC means the Convention on the Grant of European Patents
(European Patent Convention) of 5 October 1973, as that treaty is in force from time to time.
(4) To avoid doubt, for the purposes of this Division, determine whether an R&D entity *holds a patent in accordance with section 40‑40.
357‑20 Therapeutic goods covered by this Division
This Division covers a *therapeutic good if it is included in a part of the Australian Register of Therapeutic Goods (maintained under section 9A of the Therapeutic Goods Act 1989) mentioned in subsection 9A(3) of that Act.
Subdivision 357‑B—Patent box income rules
Table of sections
Operative provisions
357‑25 Treatment of income from patent box income stream as NANE income
357‑30 Meaning of R&D fraction
Operative provisions
357‑25 Treatment of income from patent box income stream as NANE income
(1) An amount (the original amount) that:
(a) arises from a *patent box income stream of an *R&D entity covered by this Division; and
(b) is included (disregarding this section) in the R&D entity’s assessable income for an income year covered by subsection (2); and
(c) is included (disregarding this section) in that assessable income otherwise than because of the operation of:
(i) Division 815; or
(ii) Part IVA of the Income Tax Assessment Act 1936;
is not assessable income and is not *exempt income to the extent that it does not exceed the amount worked out as follows:
Method statement
Step 1. Identify all patents covered by this Division that underlie the *patent box income stream (see subsection (5)).
Step 2. Work out the extent of the original amount that is attributable to those patents, worked out as a reasonable apportionment of the original amount (see subsection (6)).
Step 3. Multiply the result of step 2 by the *R&D fraction for the income year for the patent box income stream (see section 357‑30).
Step 4. Multiply the result of step 3 by the *patent box NANE fraction (see subsection (7)).
Note: This subsection does not create a specific form of statutory income.
(2) This subsection covers an income year if the *R&D entity’s election under subsection 357‑10(2) has effect in relation to the income year (see subsection 357‑10(4)).
Patent box income stream
(3) Each of the following is a patent box income stream of an *R&D entity:
(a) the sale of or dealing with a *therapeutic good covered by this Division *linked to one or more patents covered by this Division that are *held by the R&D entity;
(b) *royalties or licence fees payable to the R&D entity because the R&D entity granted a right to exploit a patented invention in respect of a patent covered by this Division that is held by the R&D entity;
(c) a *balancing adjustment event for a patent covered by this Division that is held by the R&D entity;
(d) damages or compensation payable to the R&D entity in respect of a patent covered by this Division that is held by the R&D entity.
Milestone payments
(4) For the purposes of this section:
(a) an amount may arise from a *patent box income stream mentioned in paragraph (3)(a) even if it arises before the sale or dealing mentioned in that paragraph; and
(b) an amount may arise from a patent box income stream mentioned in paragraph (3)(b) even if it arises before the grant of the right mentioned in that paragraph.
Patents that underlie patent box income stream
(5) A patent underlies a *patent box income stream mentioned in a paragraph of subsection (3) if the patent is mentioned in that paragraph.
Extent to which original amount is attributable to patents
(6) For the purposes of step 2 in subsection (1), work out the apportionment of the original amount so as best to achieve consistency with:
(a) unless paragraph (b) applies—the documents covered by section 815‑135; or
(b) if the R&D entity is a body corporate mentioned in subsection 355‑35(2) (foreign body corporate with Australian permanent establishment)—the documents covered by section 815‑235.
Patent box NANE fraction
(7) The patent box NANE fraction is worked out under the formula:
Other matters
(8) For the purposes of subsection (1), disregard an amount included in the *R&D entity’s assessable income for an income year to the extent that the amount is reflected in an amount included in the R&D entity’s assessable income for any income year under section 355‑450 (clawback for recoupments etc).
357‑30 Meaning of R&D fraction
(1) The R&D fraction for an income year for a *patent box income stream of an *R&D entity covered by this Division is worked out under the formula:
where:
A is the sum of the following:
(a) the total of the amounts that the R&D entity can deduct for the income year and previous income years under paragraph 355‑100(1)(a) or (d) in respect of the patents covered by this Division that *underlie the *patent box income stream;
(b) the total of the *cost (within the meaning of Subdivision 40‑C) of each asset in respect of which the R&D entity can deduct an amount for the income year or a previous income year under paragraph 355‑100(1)(b) or (e) in respect of the patents mentioned in paragraph (a).
B is the total expenditure, incurred in respect of the income year or a previous income year by the *R&D entity, that satisfies these conditions:
(a) the expenditure is in respect of the patents covered by this Division that *underlie the *patent box income stream;
(b) the expenditure is on one or more *R&D activities, each of which is conducted outside of Australia for the R&D entity by one or more *associates of the R&D entity.
C is:
(a) the total of the *cost (within the meaning of Subdivision 40‑C) of each asset in respect of which the *R&D entity can deduct an amount under Division 40 for a decline in value for the income year or a previous income year in respect of the patents covered by this Division that *underlie the *patent box income stream;
other than:
(b) costs that are attributable to commercial, legal or administrative aspects of patenting, to the extent that those costs relate to patents mentioned in paragraph (a) that have resulted from the R&D entity’s *R&D activities for which it is registered as mentioned in subparagraph 355‑205(1)(a)(i).
(2) To avoid doubt, for the purposes of paragraph (a) of the definition of A in subsection (1), disregard subsections 355‑100(1A), (2) and (3).
(3) For the purposes of the definition of A in subsection (1), disregard amounts of expenditure incurred by the *R&D entity on *R&D activities that are conducted outside of Australia for the R&D entity by one or more *associates of the R&D entity (regardless of whether the activities are covered by a finding in force under paragraph 28C(1)(a) of the Industry Research and Development Act 1986).
(4) For the purposes of the definition of C in subsection (1), in working out the *cost of an asset *held by the *R&D entity, treat the first element of that cost as being the asset’s *market value when the entity first started to hold it, if the entity started to hold the asset under an *arrangement and:
(a) there was at least one other party to the arrangement with whom the entity did not deal at *arm’s length; and
(b) apart from this section, the first element of the asset’s cost would fall short of its market value.
Note: In a case where the first element of the asset’s cost would exceed its *market value, see item 8 of the table in subsection 40‑180(2).
(5) Subsection (4) does not apply if the first element of that cost is worked out under section 40‑205 (Cost of a split depreciating asset).
(6) Despite subsection (1), if the amount worked out under the formula in that subsection exceeds one, the R&D fraction for the *patent box income stream of the *R&D entity is one.
Subdivision 357‑C—Other matters
Table of sections
Operative provisions
357‑35 Amendment of assessments
Operative provisions
357‑35 Amendment of assessments
Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment of an *R&D entity covered by this Division for an income year (the amendment year) if:
(a) either:
(i) an amount that arises from a *patent box income stream of the R&D entity is included in the entity’s assessable income for the amendment year (disregarding section 357‑25); or
(ii) the R&D entity is entitled to a deduction for the amendment year in relation to an amount that arises from a patent box income stream and is included in the entity’s assessable income for the amendment year or another income year (disregarding section 357‑25); and
(b) after the end of the amendment year:
(i) a patent covered by this Division that *underlies the patent box income stream was granted or issued; or
(ii) a *therapeutic good became a therapeutic good covered by this Division *linked to a patent covered by this Division that underlies the patent box income stream; and
(c) the purpose of the amendment is to alter the taxable income of the R&D entity for the amendment year, as a result of a circumstance mentioned in paragraph (b); and
(d) the amendment is made at any time during the period of 4 years starting immediately after the latest of the following:
(i) the day on which the patent was granted or issued;
(ii) the day on which the therapeutic good became a therapeutic good covered by this Division.
Note: Section 170 of the Income Tax Assessment Act 1936 specifies the periods within which assessments may be amended.
Part 2—Other amendments
Income Tax Assessment Act 1997
2 Section 11‑55 (after table item headed “offshore banking units”)
Insert:
| patent box | |
| income from patent box income stream.......................... | 357‑25(1) |
3 Subsection 715‑660(1) (after table item 1)
Insert:
| 1A | subsection 357‑10(2) | Choice to become an *R&D entity covered by Division 357 (Patent box) |
4 Subsection 995‑1(1)
Insert:
EPC has the meaning given by subsection 357‑15(3).
linked: a *therapeutic good covered by this Division is linked to a patent in the circumstances set out in subsection 357‑15(2).
patent box income stream has the meaning given by subsection 357‑25(3).
patent box NANE fraction has the meaning given by subsection 357‑25(7).
R&D fraction has the meaning given by section 357‑30.
therapeutic goods has the same meaning as in the Therapeutic Goods Act 1989.
underlie: a patent underlies a *patent box income stream in the circumstances set out in subsection 357‑25(5).
Part 3—Application and transitional provisions
Income Tax (Transitional Provisions) Act 1997
5 After Division 355
Add:
Division 357—Patent box
Table of sections
357‑1 Application of Division 357 of the Income Tax Assessment Act 1997
357‑1 Application of Division 357 of the Income Tax Assessment Act 1997
Division 357 of the Income Tax Assessment Act 1997 applies to patents granted or issued after 11 May 2021, in respect of income years starting on or after 1 July 2022.