The Turnbull Government’s Innovation Statement released this week sets the agenda for changes designed to make Australia more innovative. From our point of view, we are very excited by what these changes mean for our clients.

The recent changes to the small business concessions were a step in the right direction, but this new agenda, in our opinion, will make it a great time to be a startup business or SME in Australia. So get excited!

The following is quick overview of the key initiatives that your business can take advantage of.

What is the Innovation Statement?

The Statement is a summary of the Government’s policy agenda for innovation and science. It is broad but focussed on boosting the economy by making it easier to explore new ideas by amending the current laws and regulations.

The Statement itself is not a change to laws, and most of the initiatives announced are scheduled to be introduced as legislation over the next year.

There is a long list of initiatives. We have listed below the ones we believe will have the largest direct impact for our clients.

Access to Crowd-Sourced Equity Funding (‘CSEF’)

CSEF allows startup companies to raise up to $5m per year from a large number of individuals in return for equity. Much like an IPO except the company is not on a public exchange and many of the reporting and disclosure requirements that make raising capital from the broader public difficult, have been relaxed.

Whilst CSEF is a great opportunity for smaller businesses to raise money from the public, it is important to remember that just because you can, doesn’t mean you should. Raising money at the scale intended by CSEF still requires you to present a credible offer that has a good business case, strong fundamentals and the ability to sell it to people on mass.

There are other options for raising money that may be more suitable for your business so be sure to consult us if you wish to explore your options.

CSEF will also rely on suitable crowd funding platforms (intermediaries) tailored for these laws being available. Expect them to start appearing online soon. You should remember to do your due diligence before selecting a platform as each will have its pros and cons. We will review these platforms as they become available so please get in touch in the event you are considering CSEF.

See the fact sheet on CSEF here.

Increasing access to company losses

Currently businesses with tax losses need to pass the ‘same business test’ to offset those losses against current or future year profits. That is, they must be undertaking the same business activities now as when they incurred the losses. If they aren’t, then they lose access to these valuable losses to reduce their tax.

Under the new intended arrangements businesses will need to pass a watered down ‘predominantly similar business test’. That is, they must only be using similar assets and generating income from similar sources rather than from the same business activities.

From a tax planning point of view this will create much greater flexibility for businesses to engage in new activities where previous ones haven’t been successful. We look forward to applying the new rules to tax planning for our clients when it becomes available (expected first half of 2016).

See the fact sheet on company losses here.

Insolvency Laws Reform

Australia has a strict insolvency regime that penalises directors if they don’t declare their company insolvent at a very early stage. This often has the effect of making it impossible to trade out of difficulties or restructure the company to help it succeed.

The changes will create a ‘safe harbour’ for directors which allow them to bring in advisers early to assist businesses in financial distress to work out their difficulties.

It will also make illegal clauses in supplier contracts that terminate the contract in the event of a business’s insolvency. This means that a business that does become insolvent can potentially trade out of insolvency.

See the fact sheet on insolvency reforms here.

Reforms to Employee Share Schemes (‘ESS’)

The Startup Concession released on 1 July 2015 made it much easier for young businesses to offer equity to their employees as an incentive to join their team. Unfortunately, if you want to offer more than $5,000 worth of equity, you are still required to provide a disclosure document to the employee and lodge it with ASIC. Not only is this an expensive and time-consuming exercise, it also makes commercially sensitive information available to potential competitors through ASIC’s publicly accessible registers.

The changes will limit the disclosure requirements to resolve this and make it cheaper and easier to provide an ESS.

We have detailed knowledge on the Startup Concession. Please contact us if you are interested in implementing an ESS to attract and retain key talent.

See the fact sheet on ESS here.

Tax Incentives for Investors

Concessional tax treatments will be made available for investors in certain startup businesses (to be determined) including:

  • A 20 per cent non-refundable tax offset on investment capped at $200,000 per investor, per year.
  • A 10 year capital gains tax exemption for investments held for three years.

Much like negative gearing in property has been a pillar of property investment in Australia, we expect that concessions like these will see a wave of investment in startup businesses. As Australians, we all love a tax deduction!

That said, an investment should never be made solely for a tax deduction. Just look at Timbercorp and the myriad of other failed ‘tax effective’ investments. A good business, team and due diligence should always prevail. Any tax benefit should be seen as a bonus that forms part of the total return on investment.

As a startup business we can help you present your business for investment with professional and comprehensive offer documentation. If you are an investor, we can help you plan the tax effect of your startup investments as your personal accountant and advisor.

See the fact sheet on tax incentives here.

How we can help

mi-fi has been advising the next generation of businesses and entrepreneurs for over five years. Our bread and butter is understanding the business landscape for young, growing businesses and assisting them in using laws and regulations to their advantage.

We can help you formulate a strategy to use the initiatives announced in the Innovation Statement and execute that strategy with a team who is as passionate and agile as you.

Contact us now.