On Thur 20.1.2022, the Government released for consultation the draft Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021. This is relevant for the development of medical products (particularly new products).
By way of background, to register for the R&D tax regime, companies must conduct or plan to conduct at least one “core R&D activity”. Activities involved in clinical trials covered by the draft will meet the requirements for being core R&D activities – important because the outcome of clinical trials covered by the draft cannot be known or determined in advance.
The Treasurer and other Ministers issued a joint media release stating that the draft is the first of its kind to be made under the reforms to the R&D Tax Incentive announced in the 2020-21 Budget.
The Treasurer also reminded readers that the Government intends to introduce the so-called “patent box” tax regime, which will tax corporate income derived from patents at a concessional effective corporate tax rate of 17%. The patent box will apply to income derived from Australian medical and biotechnology patents (announced in the 2021-22 Budget).
DATE OF EFFECT: The day following the registration of the Determination.
SUBMISSIONS are due by 17 February 2022.
[Department of Industry, Science, Energy and Resources website: Consultation Page, Draft Determination, Draft Explanatory Statement; LTN 12, 20/1/22]
Extract from Explanatory Statement
Legislative Authority
The Industry Research and Development Act 1986 (Act) facilitates the administration of the Research and Development Tax Incentive (R&D tax incentive).
Under subsections 27B(1) and 27J(1) of Part III of the Act, Industry Innovation and Science Australia (the Board) may make findings about an R&D entity’s registration under section 27A including whether all or part of an activity was a core R&D activity conducted during the relevant income year.
Under subsection 28A(1) of Part III of the Act the Board must, on an application by an R&D entity, make a finding about an activity including whether all or part of the activity is a core R&D activity.
Under subsection 31D(1) of the Act, the Board may, by notifiable instrument, make a determination about the circumstances or way in which the Board will exercise any of its powers, or perform any of its functions or duties, under Part III of the Act.
On [insert date], the Board made the Industry Research and Development (Clinical Trials) Determination 2021 (Determination) which deems phase 0, I, II and III clinical trials meeting certain conditions to be core R&D activities within Part III of the Act on and after the commencement day of [insert date].
Purpose and Operation
The Determination identifies the conditions under which clinical trials will be accepted to be core R&D activities when the Board exercises its power to make a finding under section 27B, 27J or 28A of the Act.
When R&D entities submit a registration for the R&D tax incentive under section 27A of the Act or seek a finding under section 28A of the Act, the Board may need to determine if the activity meets the definition of R&D activities. This term is defined in the Income Tax Assessment Act 1997 and includes “core R&D activities”. This term is also defined in the Income Tax Assessment Act 1997.
The Determination reduces regulatory burden by providing clarity to R&D entities about the types of clinical trials that will be accepted to be core R&D activities for the purpose of the Board exercising its power to make a finding under sections 27B, 27J and 28A of the Act.
Extract from the Draft Determination
Definitions
- phase 0 clinical trial means exploratory studies or pilot studies that are used to test how the body responds to an unapproved therapeutic good before phase I clinical trials.
- phase I clinical trial means clinical trials that involve the first administration of the unapproved therapeutic good on humans to determine the safety of the good, how it works, how well it is tolerated, to identify preferred routes of administration.
- phase II clinical trials are the first trials of the unapproved therapeutic good in patients suffering from the condition for which the good is intended.
- phase III clinical trials involve greater numbers of patients compared to phase I clinical trials and phase II clinical trials and are undertaken for the purpose of determining whether the unapproved therapeutic good confers clinical benefit for which effectiveness was demonstrated in phase II clinical trials. They also determine the nature and likelihood of any side effects.
- phase IV clinical trials are those clinical trials undertaken in Australia after the previously unapproved therapeutic good has been approved (either in, or external to Australia) for the treatment of a particular disease. Phase IV clinical trials may relate to a good that is registered in another country at the time the trial is being conducted in Australia. Phase IV clinical trials may be a follow-on study from a previous trial and the rationale is that the data from the trial is being used to support a post marketing study. Phase IV clinical trials are also undertaken to further investigate the use of the good in the normal clinical setting of the disease, as this may differ quite markedly from the conditions under which the other clinical trials were conducted. This includes post marketing surveillance studies.
[Tax Month – January 2022 – Previous 2021] 26.1.22