Cuts to taxation reforms another blow to Aussie startup industry

Proposed changes to Australia's R&D tax credit and early stage investment programs have been dismissed, leaving the startup industry without a break.
Written by Michael Lee, Contributor

Australia's Assistant Treasurer Arthur Sinodinos has passed through 37 tax and superannuation measures and dismissed 55 over the weekend, putting further pressure onto the local venture capital industry.

Earlier this year, the then-Gillard government announced a "Plan for Australian Jobs" strategy that outlined these changes at a very high level. Pollenizer CEO Phil Morle told ZDNet at the time that either private investors need a break, or early stage startups need some sort of tax credits.

However, neither of those actions will take place under two of the 55 measures that were dismissed.

Those dismissed by the assistant treasurer include a measure to move for research and development tax credits to be provided in quarterly instalments. This would have important repercussions for local startups, where cashflow is a significant concern and some companies don't last long enough to make it to the reporting period, which can be as many as 16 months after undertaking R&D.

Another significant, but denied, measure included enhancing taxation arrangements under Venture Australia. The proposed measures would have encouraged new angel investment by lowering the requirements for Early Stage Venture Capital Limited Partnerships (ESVCLP) from AU$10 million to AU$5 million.

It would also have combined the ESVCLP and Venture Capital Limited Partnerships (VCLP) programs to reduce confusion for investors.

Australian Private Equity and Venture Capital Association Limited (AVCAL) CEO Yasser El-Ansary is disappointed with the changes.

"Abandoning these reforms is a major setback for Australia's innovation agenda," he said in a statement.

"Innovation is the engine room of our future economic growth, that's why these two reforms are so important to our ability to lift the nation's productivity and improve the well-being of Australians right across our community."

El-Ansary also said that the decision to dismiss the proposed measures made little sense from a budget point of view.

"These reforms would not have a significant net cost to the budget bottom line; in fact, these reforms would likely lead to more tax revenue over time as investment increases and businesses become more profitable more quickly," he said.

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