On 7 December 2015, a suite of new Tax and Business incentive measures was announced under the Commonwealth government’s National Innovation and Science Agenda (NISA): Prime Minister’s media release (7 December 2015); Treasurer’s media release (7 December 2015).
The intention is that the government’s tax and business incentives under the NISA will encourage smart ideas to encourage innovation, risk taking and build an entrepreneurial culture in Australia.
Tax and business incentives
The following tax and business incentive measures have been announced as part of the agenda. The government will:
- Provide new tax breaks for early stage investors in innovative startups. Investors will receive a 20% non-refundable tax offset based on the amount of their investment, as well as a capital gains tax exemption. This scheme is based on the successful Seed Enterprise Investment Scheme in the United Kingdom, which has resulted in over $500 million in funding to almost 2,900 companies in its first two years. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
- Build on the recent momentum in venture capital investment in Australia including by introducing a 10% non-refundable tax offset for capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLPs), and increasing the cap on committed capital from $100 million to $200 million for new ESVCLPs. The new arrangements will apply from the date of Royal Assent and are expected to commence from 1 July 2016
- Relax the “same business test” that denies tax losses if a company changes its business activities, and introduce a more flexible “predominantly similar business test”. This will allow a startup to bring in an equity partner and secure new business opportunities without worrying about tax penalties. Legislation is expected to be introduced in the first half of 2016. The “predominantly similar business test” will apply to losses made in the current and future income years
- Remove rules that limit depreciation deductions for some intangible assets (like patents) to a statutory life and instead allow them to be depreciated over their economic life as occurs for other assets. The new arrangements will apply to assets acquired from 1 July 2016.
Small businesses and Start-Ups
The government will:
- Support incubators which play a crucial role in the innovation ecosystem to ensure startups have access to the resources, knowledge and networks necessary to transform their ideas into globally scalable new businesses; and
- Make existing employee share scheme (ESS) rules more user friendly. The new rules will allow companies to offer shares to their employees without having to reveal commercially sensitive information to their competitors. These changes build on the recent reforms to ESS, which included deferring the taxing point for employees and introducing an additional concession for those working in startup companies. Legislation is expected to be introduced in the first half of 2016.
The full text of the National Innovation and Science Agenda is available on the NISA website.
If you would like to discuss these changes and how they effect you further please contact us below: