News & Analysis

Senate passes tax incentives for early stage investors and VCs

- May 4, 2016 3 MIN READ

The Senate has today passed the government’s new tax incentives for early stage investors and a scheme to improve access to capital for VCs. These two initiatives, passed with bipartisan support, are designed to make investment for Australian startups more attractive and were measures first announced in December last year as part of the government’s National Innovation and Science Agenda (NISA).

Christopher Pyne, Minister for Industry, Innovation and Science, said these measures will drive smart ideas and create business growth, local jobs and global success.

“These tax measures are designed to broaden and diversify the economy through economic policies that build growth and productivity,” Pyne said.

“The Tax Incentive for Early Stage Investors and New Arrangements for Venture Capital Limited Partnerships will promote investment in innovative high-growth potential startup companies and improve businesses’ access to venture capital.”

The tax incentive for early stage startups will give tax concessions to eligible early stage investors who invest in qualifying companies. The concessions include a capped 20 percent, non-refundable tax offset, and a 10 year capital gains tax exemption for investment on investments that are held for 12 months or more. These concessional tax treatments will be made available to investors who support startups and will be capped at $200,000 per investor, per year.

The incentive will be made available for investments in companies that were incorporated during the last three income years, have no listing on any stock exchange, and have expenditure and income of less than $1 million and $200,000 in the previous income year.

Tax incentives for investors and improved access to capital are initiatives that have been successful in the UK. The Australian government has based the new tax concession scheme on the UK Seed Enterprise Investment, which in two years has raised over $500 million in startup investment for almost 2,900 companies.

“Investors, venture capital funds and innovative companies in all industries will benefit from these measures,” Pyne said. 

New arrangements for venture capital limited partnerships will come in the form of improved access to capital to make investing in venture capital more user-friendly and internationally competitive.

In March these new tax recommendations were introduced to Parliament and were welcomed by many leaders in the startup community.

CEO of StartupAUS Alex McCauley said in March that the measures are arguably the most generous startup investor scheme in the world.

“This is a huge win for startups in Australia. We’ve been working towards this for a long time, based on the needs of startups around the country to access early stage capital – and now we have one of the most generous tax incentives in the world. The new tax incentives will allow innovative, high-growth Australian companies to grow and scale locally and the flow­-on effects of this will be substantial,” he said. 

“This incentive does it all – up front income tax offsets will encourage investment, and CGT exemption will keep investors motivated to help entrepreneurs succeed. The UK has had a similar scheme for some years, and it has been a huge success. This has been our number one priority for some time – it could be a real game changer for Australia’s startup sector.”

The incentives will increase funds available for Australian startups and will attract more entrepreneurial talent both nationally and globally. With startups having more opportunity to grow and scale faster, it is likely we will see a greater level of diversity in new ideas and products that will change the way our economy functions and improve the way companies do business in Australia and around the world.

The news comes after Treasurer Scott Morrison announced the Government’s 2016 Budget last nightwhich demonstrated a key focus on supporting innovative ideas to ensure Australia is a leading destination for fintech companies and global disruptors.

“We will continue our investment in our national innovation and science agenda – to create our own ideas boom, in every city, in every town, in every factory, farm, shop and office – including support for new start-up businesses,” said Morrison.

The Budget saw a big win for startups in the fintech sectors, with the government confirming the implementation of a regulatory sandbox to allow entrepreneurs to develop their ideas and products without the hassle of navigating through complex regulatory requirements.

Morrison also announced an additional $18.8 million over five years to the DTO (Digital Transformation Office) to create a Digital Marketplace where SMEs and startups can sell to government. Within this digital marketplace businesses will be provided a platform where they can compete for government information and communications technology (ICT) work.

Five months after Malcolm Turnbull shifted the economies focus from the resource sector and into innovation with NISA, the Senate has delivered improved tax incentives to make our country diverse and internationally competitive.

The tax incentive scheme will commence as of July 1.

Startup Daily spoke to Pyne about the tax incentives and other aspects of the NISA earlier this year:



Image: Christopher Pyne. Source: The Sydney Morning Herald.