What is the proposed ‘patent box’ tax incentive?

The Federal Government has announced in its 2021-2022 budget the ‘patent box tax regime’ (Regime).  The Regime is in effect a $206 million boost to Australian biotech and medtech innovators (Research Areas) via the implementation of a concessional corporate tax rate.

The Regime in detail

The Regime’s implementation will see corporations pay a concessional tax rate of 17% on income derived directly from new and qualifying patented inventions across the Research Areas.  Typically, the standard rates of 30% or 25% for small and medium companies, would otherwise apply.  The rationale for the implementation of the scheme is founded in Australia’s demonstrated strength for innovation across the Research Areas.  In particular, that Australia maintains a healthcare system receptive to innovation, well-funded research institutes and strong regulatory protections surrounding intellectual property make it an attractive country to undertake research and development activities.

How to qualify for the Regime

The 2021-22 Budget Factsheet, produced by the Federal Government, highlights that only patents which were applied for and subsequently granted post budget announcement will be eligible for the Regime.  In addition, the Federal Government has stated its intention to ensure the Regime meets internationally accepted standards on patent boxes and will accordingly be following the relevant OECD guidelines.  Thus, to be eligible for the Regime, corporations need to both develop a patentable invention in respect of the Research Areas.

The Regime will be in effect from 1 July 2022, with the tax concession being made available in respect of patents applied for post 11 May 2021.  Further, the concession will only be available to income which is derived in Australia directly due to the patent.  The significance of this rule is that manufacturing, branding or other income producing business activities related to the patent but not directly derived from the patent will be taxed at the standard tax rate.

Patentable invention

Section 18 of the Patents Act 1990 (Cth)(Act) sets out the prerequisites to an invention being patentable. They are:

  • a manner of manufacture within the meaning of section 6 of the Statute of Monopolies;
  • when compared with the prior art base as it existed before the priority date of that claim is novel and involves an inventive step
  • is useful; and
  • was not secretly used in the patent area before the priority date of that claim by certain persons connected to the invention.

Of the above criteria, it is important to understand the phrases ‘manner of manufacture’ and ‘priority date.’

The phrase ‘manner of manufacture’ has an established historical foundation in section 6 of the English Statute of Monopolies.  More recently, the High Court of Australia in National Research Development Corporation v Commissioner of Patents held that an invention will be a manner of manufacture where it is ‘a proper subject of the letters patent according to the principles which have been developed for the application of s 6 of the Statute of Monopolies’.  This phrase essentially requires that the invention meet the principles in section 6 of the Statute of Monopolies.  Those principles require that the invention belong to the ‘useful arts’, provide material advantage and add value to the country in an economic endeavour.  Thus, these are the requirements an invention must meet before it can be considered a ‘manner of manufacture’.

Section 43(2)(b) of the Act defines that the priority date is typically the date of the filing of the specification, which for those corporations looking to utilise the Regime, will be a patent.  Given the Regime is confined to inventions in respect of the Research Area, the typical priority date as described may not apply.  In circumstances where an invention involves micro-organisms, the priority date may become a complex matter prescribed by both the Act and the Patents Regulations 1991 (Cth).


The Federal Government has implemented a widely and internationally heralded patent box tax concession aimed to drive research and development across the biological and medical technology industries.  The scope of the patent box is narrow although clear in its expression and, resultantly, a large number of biotech and medtech firms will be eligible for large tax concessions.

Links and further references

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Section 18 of the Patents Act 1990 (Cth)
Section 43(2)(b) of the Patents Act 1990 (Cth)
Patents Regulations 1991 (Cth)
Section 6 of the English Statute of Monopolies


National Research Development Corporation v Commissioner of Patents [1959] HCA 67

Further information

If you need advice on whether your invention may qualify your company for the concessional tax rate, contact us for a confidential and obligation free discussion:

Malcolm BurrowsMalcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 (Preferred)
Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au


This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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