Guest post by Anthony Lieu, Lawyer and Strategist at LegalVision
Federal Treasurer Scott Morrison handed down his first Budget on 3 May 2016. Among new measures for young job-seekers and working families, the Federal Budget reinforced the Government's commitment to the National Innovation and Science Agenda announced December last year. Below, we set out the key ways that startups and SMEs will be affected.
The budget contained a $200,000 commitment to promote the Australian financial technology – or ‘fintech’ – industry, which consists of startups and companies using technology to make financial services more efficient. The commitment will support the new body Fintech Australia, which will promote Australian fintech start-ups internationally.
ASIC will also begin a ‘regulatory sandbox’ consultation allowing fintech startups to test their ideas for up to six months, which will provide a controlled environment for startup entrepreneurs looking to break into the fintech market to trial their product.
The Federal Government has also shown further commitment to promote blockchain technology. This technology, currently used in cryptocurrencies such as bitcoin, removes barriers to financial transactions and will greatly improve the efficiency of the financial services industry. The Treasury and Data61 will perform a detailed study over the next nine months to examine the potentials and implications of blockchain trends.
Company Tax Changes
As part of the Ten Year Enterprise Tax Plan, the Government will introduce tax cuts to both incorporated and unincorporated businesses in the upcoming financial year.
Incorporated businesses with an annual turnover of up to $10 million will pay a company tax rate of 27% instead of 30%. This turnover threshold is expected to increase gradually over the next ten years.
Recognising that not all businesses are incorporated, unincorporated businesses with less than $5 million annual turnover will be eligible for an 8% discount on their personal income tax from 1 July 2016. This is an increase from the current 5% but will remain capped at $1,000. About 2.3 million unincorporated Australian businesses are predicted to be eligible and this is expected to benefit start-ups and SMEs.
The Budget also covered tax incentives to encourage early-stage startup investment, including a 20% tax offset on investments in innovation companies and a ten-year exemption from the capital gains tax as announced in December 2015. This also applies to everyday ‘non-sophisticated investors’ that invest in startups, although this will be capped at investments of $50,000 or less per year.
An additional $89 million will be committed to encourage entrepreneurship for young job seekers. This includes the New Enterprise Incentive Scheme, to come into effect 1 December 2016, which aims to increase access to self-employment training. A new program called ‘Exploring My Own Boss’ will also be launched in a series of workshops and starter packs for younger people to explore being self-employed and who may wish to start their own business.
The government will set aside $1.1 billion for a ‘National Innovation and Science Agenda’, to be implemented through the CSIRO. This will essentially support new ‘spin-offs and startups’ created by Australia’s research institutions and will involve reforms to employee share schemes and crowd-sourced equity funding that aim to make it easier for startups to raise capital. Employee share schemes are expected to be made more user-friendly by reducing disclosure requirements. The government will also aim to facilitate the development of crowd-sourced equity funding to expand financing options for startups, allowing them to raise funds from a larger number of small investors.
The Federal Budget is promising for startups and SMEs in boosting economic growth and creating jobs, particularly those interested in pursuing entrepreneurship and creating new small businesses. As 1 July 2016 approaches, a number of the initiatives under the Ideas Boom will kick into force - a bright future lies ahead for innovation in Australia.
Anthony is a lawyer and Strategist at LegalVision. He has a keen interest in startup law, IT law and scaling fast-growing businesses. He has a strong understanding in how startups operate at all stages and navigating the myriad of legal issues surrounding online businesses. He has worked in the public and private legal sector, specialising in disputes and litigation, corporate advisory and tax controversy.