R&D Tax Incentive: Industry Research and Development (Clinical Trials) Determination 2021

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Written by Darren McClafferty, Kim O’Connell, Intan Eow, Judith Taylor, Luke Hawthorne and Thomas Wu

On 20 January 2022, the Federal Government released for consultation the draft Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021 (Determination).

The Determination is intended to provide businesses with increased certainty that investment in clinical trials will be eligible for the Research and Development Tax Incentive (R&D Tax Incentive) by clarifying the specific conditions under which clinical trials will be accepted to be “core R&D activities” by Industry Innovation and Science Australia (the Board).

Clinical trials are key to ensuring innovation in medicines, vaccines, medical devices and diagnostic therapies. Encouragement of the clinical trial industry in Australia not only ensures that patients have access to new and emerging therapies, but also strengthens the Australian research economy and its participating institutions.

Industry-body MTP Connect reported in its 2021 Clinical Trials Report that:

  • the clinical trials sector employs 8,000 Australians;
  • more than 95,000 Australians participated in clinical trials in 2019, which saw around 1,880 trials started;
  • this activity saw $1.4 billion spent on clinical trials in Australia in 2019; and
  • the sector now generates more export revenue than construction, intellectual property charges and government services.

As such, strengthening and adding certainty to the economic incentives to engage in all phases of clinical trials in Australia is likely to be welcomed by industry participants. 

Key takeaways

The draft Determination provides that activities which constitute phase 0, I, II or III clinical trials for certain, unapproved therapeutic goods (i.e. goods not yet entered on the Australian Register of Therapeutic Goods and used solely for experimental purposes in humans) are “core R&D activities”.

The Determination precludes certain activities from falling within its scope, such as clinical trials of generic products or “phase IV” clinical trials (which usually test an expanded use of an existing therapeutic good). Some of these activities may still fall within the definition of “core R&D activities” as defined under the Income Tax Assessment Act 1997 (1997 Act) but are not the subject of the Determination.

Written submissions, survey responses and comments on the draft Determination are due by 17 February 2022.


The R&D Tax Incentive program provides R&D tax offsets to encourage businesses to invest in research and development with the intention of benefitting those businesses and the broader Australian economy. Recent legislative reforms announced in the 2020-21 Budget paved the way for the introduction of determinations in the administration of the R&D Tax Incentive program. The draft clinical trials Determination is the first determination of its kind to be developed for these purposes and has been prepared by AusIndustry in consultation with the Australian Taxation Office and the Commonwealth Department of Health.

By way of background, to register for the R&D Tax Incentive an eligible entity must conduct or plan to conduct at least one “core R&D activity” (as defined in the 1997 Act). As part of this framework, AusIndustry has noted that before registering for the R&D Tax Incentive, some businesses apply to the Board to make an advance finding under the Industry Research and Development Act 1986 as to whether all or part of their clinical trials will fall within the definition of “core R&D activities”. The policy intent of the Determination is to reduce the regulatory burden faced by these businesses by providing increased certainty about the types of clinical trials that will be accepted as core R&D activities.

Impact of determination

Phase 0, I, II and III clinical trials involving specified, unapproved therapeutic goods “used solely for experimental purposes in humans” will be core R&D activities

Section 5 of the draft Determination identifies specific conditions under which clinical trials will be accepted by the Board to be core R&D activities.

First, the clinical trials must constitute phase 0, I, II or III clinical trials for an unapproved therapeutic good (i.e. a good that is not yet entered on the Australian Register of Therapeutic Goods). As defined under section 4:

Phase 0 clinical trial

[M]eans 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

[M]eans 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

[A]re the first trials of the unapproved therapeutic good in patients suffering from the condition for which the good is intended. The principal aim of these clinical trials is to determine effectiveness and safety of the unapproved therapeutic good.

Phase III clinical trials

[I]nvolve 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.

Second, pursuant to section 5(a)-(b) of the Determination, the clinical trial must also be:

  • notified to the Therapeutic Goods Administration (TGA) pursuant to item 3 of Schedule 5A of the Therapeutic Goods Regulations 1990 or item 2.3 of Schedule 4 to the Therapeutic Goods (Medical Devices) Regulations 2002; or
  • approved by the TGA pursuant to sections 19(1)(b), 32CK(1)(e) or 41HB(1)(e) of the Therapeutic Goods Act 1989.

Each of these provisions concern clinical trials involving specified goods (for example, therapeutic goods, medical devices, or specified biologicals) that are “used solely for experimental purposes in humans”.

Certain clinical trials excluded from scope of Determination

Section 6 of the draft Determination limits the scope of the draft Determination by expressly noting that “[n]one of the following will be core R&D activities for the purposes of section 5 of this instrument”:

  • any clinical trials of “generic products”, as defined under the Therapeutic Goods Regulations 1990;
  • phase IV clinical trials, defined as “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…”;
  • activities that come within the scope of subsection 355-25(2) of the 1997 Act, which expressly precludes certain activities from the definition of “core R&D activities” (e.g. market research, market testing or market development, or sales promotion); and
  • activities that are not, or will not be, conducted in accordance with all applicable approvals, regulatory requirements, and standards that are in force at the time the phase 0, I, II or III clinical trials are being conducted.

Importantly, and for the avoidance of doubt, the inclusion of any activities under sections 6(a), (b) and (d) of the draft Determination will not necessarily mean those activities are not “core R&D activities” as defined under the 1997 Act. Rather, an entity that wishes to claim R&D tax offset in respect of such activities will need to demonstrate that such activities meet the definition independently and without the support of the Determination.


New definitions for clinical trial phases

The explanatory statement to the draft Determination recognises that there is no single accepted industry wide definition of “clinical trial”. As currently drafted, the Determination’s definition of “clinical trial” applies to a narrower set of activities than the definitions adopted by the World Health Organisation (WHO) or the National Health and Medical Research Council (NHMRC). In particular, the Determination’s definitions for phase 0, I, II, III and IV clinical trials may be a potential point of contention for some businesses. Key questions on which AusIndustry has invited comment are whether the definitions are clear and whether they should be expanded to include more clinical trials.

Scope of Determination

The draft Determination is the first of its kind for the R&D Tax Incentive program, and AusIndustry has publicly stated they are planning to examine opportunities for determinations for other sectors following the introduction of this first determination for the R&D Tax Incentive program.

The Determination is a useful starting point and has the potential to substantially streamline the existing approval framework for some businesses, along with providing a level of increased certainty for clinical trials that fall within its scope.

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