Innovation Statement: The Tax Implications
On Monday 7 December the Turnbull Government released its innovation statement, which sets out a number of policy changes to drive investment in innovative start-ups.
The statement includes substantial tax breaks and changes to insolvency laws in an effort to reduce the fear of failure for start-ups and investors alike. The key tax measures to come out of the statement are noted below.
Investors will be able to access a 20 per cent non-refundable tax offset on their investment, which is capped at $200,000 annually per investor. Additionally, there will be a 10 year CGT exemption for investments which are held for at least three years. Companies will be deemed eligible for the tax concessions if they:
- Undertake an eligible business (to be defined in consultation with industry);
- Were incorporated during the last three income years;
- Are not listed on any stock exchange; and
- Have expenditure less than $1 million and income less than $200,000 in the previous income year.
Capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLPs) may be eligible for a 10 per cent non-refundable tax offset. The cap on committed capital for ESVCLP’s will also be increased from $100 million to $200 million.
The default bankruptcy period before restarting a business will be reduced from three years to one year. Additionally, a ban will be imposed on ‘ipso facto’ contractual clauses, which allow an agreement to be terminated solely due to an insolvency event. The ‘same business test’ will be replaced by a more flexible ‘predominantly similar business test’, which will allow businesses to access prior year losses.
The requirement for disclosure documents given to employees under an ESS to be made available to the public will be limited, allowing otherwise non-disclosing companies to offer shares to employees without disclosing information to competitors. This will add to the changes made earlier this year to encourage the use of ESS arrangements for start-ups.
The innovation statement contains 24 measures in total, including university funding incentives, new visas for entrepreneurs and an increase in funding for science and research with a $200 million CSIRO fund. These measures will cost the federal budget $1.1 billion dollars over the next four years and about $3 billion over the next decade.
Legislation on the various measures will be realised in the first half of 2016, with the bulk of the measures expected to commence from July 2016.
Article by Edwina Ring