Australia: R&D tax incentive

Australia: R&D tax incentive

A decision of the High Court of Australia concerning patents may provide guidance concerning the “tighter” definition of research and development (R&D) under the current tax incentive.


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The High Court’s case is: S54/2015 (AstraZeneca

The R&D incentive has a tighter definition of R&D than its predecessor, the R&D tax concession. Specifically, the new measure not only requires that there be an intention to generate new knowledge, but the outcome of experiments being claimed must be uncertain—i.e., could not have been known or determined in advance on the basis of current knowledge, information or experience (a nod to established scientific principles). As yet, there have been no cases to authoritatively determine key definitions on R&D eligibility under the incentive.

The High Court found that the subject invention lacked an inventive step because it would have been obvious to a person skilled in the relevant art, in light of common general knowledge—either considered separately or together with information publicly available.

This appears similar to the extrinsic materials provision of the R&D tax incentive, which states that “…where the outcome of the experiments, or how to achieve that outcome in practice, could be deduced or determined by a competent professional in the field on the basis of current knowledge, information or experience…” the experiment will not qualify as R&D. 

KPMG observation

This does not mean the incentive requires patentable R&D (an “inventive step” is arguably a higher threshold), but it does indicate R&D must be beyond the obvious or even that which a competent professional might readily deduce based on existing knowledge. 

Until there is incentive-specific case law, R&D claimants need to consider this case when preparing R&D claims.

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