Innovation Tax Incentives

The Government’s innovation policy announced today has a number tax and business initiatives designed to encourage and support the risk of investment in new ventures.

Among the measures: Support is to be provided by way of tax incentives for early-stage investments, there is a softening of some of the business rules around disclosures, fund-raising and insolvency, and the provision of direct and co-operative funding for grants and innovation funds.

Several tax initiatives, including the Early Stage Venture Capital Limited Partnerships changes are specified to kick in from 1 July 2016. The timelines for many other initiatives are less certain, some obviously subject to the federal parliament’s legislative program.

Initiatives included in today’s announcements include:

Early stage investors

  • 20% non-refundable tax offset based on the amount of investment capped at $200,000 per investor per year; and a 10 year capital gains tax exemption for investments held for 3 years – expected (subject to legislation) to begin 1 July 2016. This will be aimed at new unlisted companies:
    • incorporated within the past three income years; and which
    • have expenditure less than $1 million and income less than $200,000 in the previous income year
    • conducting an “eligible business” (to be determined)

Early Stage Venture Capital Limited Partnerships

  • Early Stage Venture Capital Limited Partnerships (ESVCLPs) – from 1 July 2016:
    • 10% non-refundable tax offset for capital invested in new ESVCLPs
    • increased cap on committed capital from $100 million to $200 million for new ESVCLPs
    • ESVCLPs will no longer need to divest from a company when its value exceeds $250 million

Tax losses

  • relaxation of the ‘same business test’ which denies tax losses if a company changes its business activities, to be replaced with a more flexible ‘predominantly similar business test’ – to apply from the current tax year onwards.

Depreciation

  • Intangible assets depreciation which is currently limited to statutory life (like patents) to be allowed the option of depreciation over their economic life as occurs for other assets – applies to assets acquired from 1 July 2016.

Insolvency

  • Softening of bankruptcy laws to encourage and enable more firms to trade out of difficulties
    • default bankruptcy period to be reduced from 3 years to 1 year
    • allow directors a ‘safe harbour’ from personal liability for insolvent trading if they appoint a professional restructuring adviser to develop a turnaround plan
    • ban ‘ipso facto’ contractual clauses that allow an agreement to be terminated solely due to an insolvency event if a company is undertaking a restructure

Business Research and Innovation Initiative

  • Innovative businesses to receive grants of up to $100,000 to test their ideas over three to six months of development (launching 1 July 2016)

Employee Share Schemes

  • Employee Share Schemes to be able to keep disclosure documents from the public, and to be made more “user-friendly” – no fixed date for implementation

Crowd-sourced funding

Introduction of a crowd-sourced equity funding platform to be implemented within 6 months of the legislation being approved by parliament.

  • for raising up to $5 million (individuals maximum $10,000 each)
  • a 5 year exemption from the normal reporting and disclosure requirements
  • available to Australian public companies with a turnover and gross assets of less than $5 million.

Innovation Funds

  • New innovation funds are to be established: $200 million CSIRO, and biomedical fund $250 million

Incubator Support

  • This is to be a new component of the existing Entrepreneurs’ Program to “support development of new incubators and accelerators in regions or sectors with high innovation potential”
  • $8 million in funding has been earmarked for “competitive matched funding” for the programme which is to commence 1 July 2016

Visa programs

  • Visa programs to encourage entrepreneurial talent and skills include
    • a new provisional Entrepreneur Visa (from November 2016) for entrepreneurs with innovative ideas and financial backing, with a pathway to permanent residence
    • enhanced pathways to permanent residency for STEM and ICT research postgraduates with extra points awarded under the points tested skilled migration programme – from December 2016

Consultation: The Government is seeking submissions for the appropriate definition of an innovation company, and how eligibility for the innovation incentives can be made consistent with industry concepts and business practices. The closing date for submissions is 24 February 2016. Further details and a policy discussion paper are here.

National Science and Innovation Agenda and Treasury websites:

Media Release – Treasurer: Tax and business incentives to boost economic growth & jobs

ABC News online: Innovation statement: PM Malcolm Turnbull calls for ‘ideas boom’ as he unveils $1b vision for Australia’s future