Accordingly, appropriate legal advice should be sought.
Incentives and concessions
Crowd-source funding
New legislation introduced better access to crowd-sourced funding (CSF) for start-ups by reducing compliance and disclosure burdens for five years.
Start-ups earning less than $25 million in annual revenue with less than $25 million in gross assets may be eligible to make CSF offers to the market and accept investment from retail investors.
Concessions include:
Exemption from holding an annual general meeting.
The option to provide reports to shareholders simply by making them available online and
An exemption from appointing an auditor until the company has raised $1M or more from CSF offers.
Venture capital limited partnerships (VCLPs) and early stage venture capital limited partnerships (ESVCLPs)
These investment vehicles can provide tax exemptions and concessions for those investing in Australian companies.
Broadly, the tax benefits are:
Flow-through tax treatment for the partnership (ie partners are taxed according to their separate individual tax status)
Exemption to foreign investors from tax on their share of the profits made by the partnership (provided certain conditions are met) and
Fund managers can claim their ‘carried interest’ (ie management fee) on capital account, rather than revenue account.
Limited partners in an ESVCLP also receive a non-refundable carry forward tax offset of up to 10% of their eligible contributions. Further, both resident and non-resident limited partners in an ESVCLP are exempt from tax on their share of the profits made by the partnership (provided certain conditions are met).
Early stage innovation company tax incentives
The tax incentives available to early stage investors (or ‘angel investors’) link to the Government’s policy of encouraging innovation and assisting with start-up acceleration.
Broadly, eligible investors in Australian companies are provided with:
A 20% non-refundable carry-forward tax offset for qualifying investments, capped at $200,000 for each investor and their related parties (combined) per year, and
A deemed capital account treatment, and an exemption from capital gains tax for qualifying investments held between one and ten years. Investors who hold shares for at least 10 years also receive a market value cost base on the 10th anniversary of their acquisition.
The incentives focus primarily on sophisticated investors, although ‘mum and dad’ investors can access them in some cases.
R&D tax incentive
Under this incentive, companies with an annual turnover of $20 million or less may be eligible to claim a refundable cash offset of 43.5% of eligible R&D costs.
Among other things, these incentives encourage and incentivise research and development that may not otherwise have been conducted and
Despite the reference to ‘research and development’, the incentive is targeted towards expenditure incurred by innovating systems and processes, such as developing software for the business’ use or creating a new manufacturing process.
The R&D tax incentive is a significant opportunity for innovative start-ups, particularly as certain professional advisers allow for their costs to be deferred and paid from the refunded offset.
Employee share scheme start up (ESS) concessions
These concessions offer benefits to both small business employers and their employees.
While small business employers are subject to reduced compliance costs associated with set up and maintenance of schemes, eligible employees receive the following tax benefits:
No tax is payable until the options or shares are sold, and
Any gain made on the sale or disposal of shares or options are treated as capital gains, with the 50% CGT discount potentially available.
The ESS start up concessions can allow small businesses to provide tax effective medium to longer term incentives to their employees, compensate for lower salaries and relieve pressure on cash flow.
Grants and assistance
The Federal Government maintains an online directory (https://www.business.gov.au/assistance/) which can be used to search for Federal grants and programs by State, industry, annual turnover and more.
Here are some examples of grants and assistance programs available nationally:
• Export Market Development Grants (EMDG) – Provides exporters aiming to increase their international sales with reimbursements of up to 50% of promotional expenses between $15,000 and $150,000.
• Australia-China Science and Research Fund Joint Research Centres – Provides Australian research organisations with grants of up to $1 million to participate in Joint Research Centres that link Australian and Chinese research institutions to conduct research-related activities.
• Innovation connections – Provides small and medium sized businesses with access to expert advice to address technology and knowledge gaps and collaborate with the research sector in developing new ideas with commercial potential. Support includes up to $50,000 in matched funding for collaborative projects.
• Incubator support – Provides new and existing business incubators with matched funding (ie from applicants) of up to $500,000, to assist Australian start-ups to succeed in international markets.
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