Not enough finance is flowing into our startup sector, which is stunting innovation in Australia, slowing the development of new ideas and new business opportunities.
That is why Labor will act to encourage more capital into Australian startups - so they can innovate, develop their concepts and most importantly help create the jobs of the future.
Labor will supercharge the formation of startups in Australia by delivering tax relief for angel investors through a new Australian Angel Investment Scheme and through changes to the existing Early Stage Venture Capital Limited Partnerships (ESVCLP).
Startups typically find it more difficult to access capital than their larger commercial counterparts because of a lack of prior financial history, limited supporting collateral and their risk profile.
Strengthening capital flows to startups will deliver substantial support to early stage innovation.
Angel investors directed just $21million to Australian startups in 40 deals in 2012.
We must do more to encourage additional investment into Australia’s growing startup system.
Labor has already announced a number of measures to improve access to capital for the commercialisation of great Australian ideas and the establishment of startup ventures.
- $500 million Smart Investment Fund will co-invest in early stage and high potential companies;
- An Innovation Investment Partnership to identify barriers holding back investment in Australian-based venture capital funds and early-stage enterprises; and
- Finance for startups and micro-businesses through a partial guarantee scheme, Startup Finance.
Countries around the world such as the United Kingdom and Israel have introduced new tax incentives for investors which are helping to channel more funds into the startup sector and this support is now paying off. In the UK, nearly 2,900 startup businesses have received support through the successful Seed Enterprise Investment Scheme (SEIS).
To drive early stage financing of startups across a diversity of sectors Labor will establish an Australian Angel Investment Scheme, based on the UK SEIS.
The Australian Angel Investment Scheme will aim to attract greater private financing support for startups in the early stage of their development.
It will reward individual support for the nation’s early stage innovation effort via modest tax relief to investors who purchase an equity stake in those businesses.
The benefits of targeting significant tax relief to very early stage startups is that these they have the most trouble getting access to finance because its where the largest market barriers exist.
Once early stage startups have proven concepts and get on their feet, they are in a better position to then seek out other avenues of finance, such as venture capital and crowd-source funding.
The Australian Angel Investment Scheme will provide:
- An upfront 50 per cent tax deduction for an investment up to a maximum of $200,000 per year.
- Investors can ‘carry back’ tax relief if they don’t reach the maximum $200,000 cap in any particular year.
- Full capital gains tax exemption for equity held in the startup venture for more than three years.
- Any realised losses following investment in the scheme can be deducted against wage and salary income.
- Deferral of capital gains tax on investments if the investor directs a prior capital gain into a new startup venture.
Startups supported under the scheme would have the following characteristics:
- Maximum of 25 employees;
- Maximum $400,000 in assets; and
- Maximum raised under the scheme is $300,000 per year.
In addition, Labor will also lower the minimum level of investment required for entry into the ESVCLP program from $10 million to $5 million to facilitate increased funding from angel investors.
Venture capital funds invested in Australian businesses will be entitled to preferential tax treatment through the ESVCLP program.
Currently the ESVCLP rules restrict any one entity from contributing more than 30 per cent of a fund. Only financial institutions are exempt from this rule.
To encourage greater participation from investors in other sectors, rules should enable the regulator to provide exemptions for certain widely held companies who demonstrate an active, sizeable commitment to Australian innovation.
To read more about Labor’s positive plan to power innovation visit www.futuresmartaustralia.org/poweringinnovation
FRIDAY, 4 DECEMBER 2015
MEDIA CONTACT: LEADER’S OFFICE MEDIA UNIT 02 6277 4053