On 3 May 2016, Federal Treasurer Scott Morrison handed down the 2016-2017 Federal Budget. A number of measures were announced to provide further support for the Government’s National Innovation and Science Agenda including incentives for investors and investment in FinTech. With no further announcements made on startup incentives, startup founders will now have to wait closer to 1 July 2016 to find out more information about when most measures will kick off.
Tax Incentives for Angel Investors
The Federal Budget will offer tax incentives for angel investors in early stage startups. The Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 will include the following measures:
- A 20 per cent non‑refundable tax offset based on the investment amount, capped at $200,000 per investor; and
- An exemption from capital gains tax on the investment provided a minimum 12‑month holding period has been met.
The Bill is expected to commence 1 July 2016 having passed both Houses on 4 May 2015.
In the Mid‑Year Economic and Fiscal Outlook 2015‑16 (MYEFO), there were some details omitted until further consultation. The Budget has elaborated on a number of these finer details, including the definition of a startup and limits on investment:
- An eligible startup has a requirement that the investor is not affiliated with the startup.
- To receive the tax offset, there is an investment limit of $50,000 or less per income year for non-sophisticated investors.
Following the Budget announcement, the Australian Securities and Investment Commission also released an update on its proposal to work with FinTech startups to navigate the developments in the regulation framework. This update includes a regulatory sandbox licensing exemption for FinTech startups. This sandbox will allow for businesses to be exempt from financial licensing requirements which will, in turn, allow startups to build new products and scale quickly.
For startups and FinTech businesses to be eligible to participate, they must not currently operate under an ASIC licence, be in the process of obtaining a licence, nor have been operating with a licence for more than a year. In order to satisfy the eligibility criteria, they must also have a ‘potentially ground-breaking innovation’ and the innovation will provide for a better outcome for investors and clients.
Next month, ASIC will issue a consultation paper to the public which will further address the eligibility requirements. The consultation paper will also seek feedback on the features of the regulatory framework. Currently, the sandbox will allow a six-month period for FinTech businesses to operate without a licence to test certain financial services. They will also provide avenues for investors and limited retail clients to participate in the scheme.
The Federal Budget announcement offered some small wins for startups and small businesses building upon the MYEFO measures. While the Budget was a good opportunity to build momentum on the Government’s Innovation Statement and introduce new measures, it appears there is still some fine-tuning to be done before the Government announces further programs to assist startups. Watch this space as we follow the National Innovation and Science Agenda.
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