Innovation Tax Incentives
The Government has now released a discussion paper in relation to tax incentives for early stage investors.
These incentives are intended to encourage investors into Australian “innovation companies”. These are essentially companies which:
- Were incorporated in Australia within the last 3 years;
- Have assessable income of $200,000 or less in the prior income year;
- Had expenditure of $1m or less in the prior year; and
- Were not listed on any stock exchange.
Exactly what is innovation will be determined based on a set on principles (to be determined through this consultation process) but which will most likely look at whether the company has developed a new idea or significantly improved an existing idea which:
- Creates new products or services;
- Creates a new platform for deliver of products or services;
- Changes the way an organisation, service delivery or process operates; or
- Creates a new organisational or marketing method.
There will also be a list of area’s specifically excluded from the provisions. These may include traditional or existing products or services. Care needs to be taken to ensure that genuine innovations are not discouraged through this exclusion list.
Eligible investors will receive a 20% non-refundable tax offset of up to $200,000 per year. So, for example, if you invested $1m into an eligible company you would receive a tax offset of $200,000 against your tax liability for that year. If you can’t use the offset that year it can be carried forward to a following year.
It is possible to make the investment directly into the innovation company or into a company that invests in innovation companies. This is likely to see the proliferation of early stage innovation funds focusing on this sector, similar to the early inception of the Pooled Development Funds initiatives.
These provisions are intended to apply from 1 July 2016. In general, we think the concept will be well received and hopefully provide more risk funding for the innovation sector. Hopefully, the inevitable integrity provisions will not stifle a positive initiative.
Consultation on these provisions are open until 24 February 2016.