Tax incentives played a significant role in the innovation statement.
- Tax incentives for early stage investors. This includes a 20% non-refundable tax offset for qualifying investments and Capital Gains Tax exemption if investments are held for three years.
- Concessional tax treatments for venture capital limited partnerships.
- Modifications to the ‘Same Business Test’ to access capital forward losses. Replacing this concept is a “predominantly similar” business test. Here companies self-assess the effective life of changes to the intangible asset depreciation rules enabling acquired intangibles. Effective life is currently defined by statute.
- Reduced disclosure of obligations with respect to employee share schemes. This complements earlier announcements regarding tax concessions for ESS issued by start-ups.
Given the number of tax focused initiatives announced, it seems that the government acknowledges red tape and that tax policy is a key driver of innovation. While the announced initiatives are a welcome step forward, to remove some of the structural impediments within Australia, there are additional tax initiatives that should be addressed including:
Depreciation of internally generated IP
While the government announced changes to the depreciation rate for acquired IP, the issue of internally generated IP remains untouched. Internally generated IP, (the most likely form of IP in the hands of a start-up) cannot be recorded on a company’s balance sheet and doesn’t attract the depreciation deduction afforded to acquired IP. This policy change will most likely benefit larger corporates that have the funds to acquire and further develop existing IP.
More information on the Patent Box regime can be found here.