The new tax incentives from the National Innovation and Science Agenda are welcome.
The most relevant incentives for small businesses are:
Early stage investors in start-ups
Concessional tax treatment will be introduced for early stage investors in innovative start-ups, including:
● a 20% non-refundable tax offset capped at $200,000 per investor per year, and
● a capital gains tax exemption provided investments are held for at least three years and less than 10 years.
The concessions will apply to investments in companies that were incorporated during the last three income years and that are undertaking an ‘‘eligible business’’, the scope of which is to be determined by the government in consultation with industry.
In addition, the company must not be listed on any stock exchange as well as have expenditure of less than $1m and income of less than $200,000 in the previous income year. To apply from 1 July 2016.
Changes to same business test
There will be changes to relax the existing ‘‘same business test’’ to allow businesses to access prior year losses even if minor changes are made to their operations. The test will be replaced by a ‘‘predominantly similar business test’’ that allows companies receiving new equity injections or that diversify revenue streams to still access company losses. It appears the new test will not be available for existing losses but for losses made from the income year in which the changes commence. To apply from 1 July 2016.
Depreciation on intangibles
Small Businesses will be able to self-assess the tax effective life of acquired intangible assets where it is currently fixed by statute. This will align the depreciation treatment of intangible assets with that of other types of assets and allow for faster depreciation claims. There will also be an option to use existing statutory effective lives. Applies to assets acquired from 1 July 2016.
Crowd Sourced Equity Funding (CSEF)
Reforms propose to allow entrepreneurs to raise up to $5million per year from a large number of individuals in return for equity in their company with an exemption from the normal reporting and disclosure requirements that apply to public companies for the first five years. CSEF will be available to Australian private companies with a turnover and gross assets of less than $5million and investors are limited to a maximum investment of $10,000 per company per year. The new CSEF arrangements are expected to be in place within six months of legislation passing into law.
Insolvency Law Reform
Proposed to strike a better balance between encouraging entrepeneurship and protecting creditors by reducing the current default bankruptcy period from three years to one year; introducing a ‘safe harbour’ to protect directors from personal liability for insolvent trading if they appoint a restructuring adviser, and making contract termination unenforceable due to insolvency if the company is undergoing a restructure. A paper outlining the proposal will be released in 2016, with legislation to be introduced mid 2017.