The Turnbull Government will today introduce legislation that delivers huge tax benefits to angel investors who put their money into in higher risk, early stage startup companies that make Australian incentives among the most generous in the world.
The legislative changes will deliver “sophisticated” investors a 20 per cent upfront tax concession on early stage investments of up to $1 million (capping the benefit at $200,000) and making these investments Capital Gains Tax-free for investments held for just one year.
The government has also flagged changes to the tax treatment of venture capital funds to make them more attractive to investors and to other institutional investment funds. The changes will drive both the creation of larger innovation funds, but also more innovation-focused funds.
The tax changes had not been unexpected, having been flagged as a part of the Prime Minister’s National Innovation and Science Agenda last December, but they are somewhat more generous than anticipated and certainly reached the floor of the Parliament faster than expected.
The Prime Minister Malcolm Turnbull and Industry Minister Christopher Pyne revealed the changes at a press conference naming the new members of the Innovation and Science Australia Board.
It is understood the consultation process, which has led by Treasury and driven by the Assistant Treasurer Kelly O’Dwyer, had been conducted through late January and February in order to the legislation drafted in the pre-Budget period.
The changes to the Early Stage Venture Capital Limited Partnerships schemes includes a 10 per cent tax offset for all new money invested during an income year. It also doubles the allowable size of these funds to $200 million.
And as a Christmas come early for Australia’s tiny accelerator and incubator community, the changes also allow for investment in holding companies that have existing investments in multiple subsidiaries.
The changes will make it significantly easier for other institutional funds to invest in ESVCLPs, including foreign funds, and removes the restriction on foreign wholesale funds from holding more than 30 per cent of a local ESVCLP.
These changes make it a lot more attractive for foreign VCs to take bigger positions in Australia – and promise to deliver a huge funding wave to Australian-based startup companies.
If the success of a startup company rests with its ability to access capital, access skills and access markets, then the government’s policy roll-out in these areas have begun to take shape, Christopher Pyne told a news conference yesterday.
“As the Prime Minister mentioned, tomorrow we introduce legislation to implement the tax incentives for early stage investors, angel investors in startups and some of the changes around venture capital limited partnerships,” Mr Pyne said.
“We’ve started the consultation for changing visas to include a new visa for entrepreneurs which takes a long process but that process has begun,” he said.
“As has the process for implementing the incubator program that Wyatt Roy is responsible for, and the crowd-sourced equity funding laws are already through the House of Representatives.”
“And we’ve already announced the people who’ll be rolling out our programs for science, technology, engineering and maths (STEM) in preschools, the people who’ll be supporting digital literacy for teachers in the national curriculum.
“[And overseas the] Landing pads have been announced in Shanghai, Tel Aviv and San Francisco and are either opened or in the process of being opened and two more will be soon announced,” Mr Pyne said.