The Government’s National Innovation and Science Agenda (NISA) includes an initiative to create a new tax incentive for early stage investors. Ahead of drafting enabling legislation, a consultation paper has been released and a number of consultation roundtables held. Angus Wilson and Georgia King-Siem provide insight.
This is broadly based on the Oslo Manual but contains a number of limitation which will exclude many otherwise eligible innovation companies (e.g. incorporated for more than 3 years or had assessable income over $200,000 in the previous year).
For companies seeking certainty on their innovation status, there will be two options provided, namely:
At this stage it is proposed that direct investment be restricted to sophisticated investors, which may well limit the potential investor pool but equally there are investor protection issues to consider. Indirect investment will be via investment funds.
However, it is proposed that investment funds will be restricted to companies which may unduly exclude other investment vehicles such as trusts and partnerships.
The consultation paper draws heavily from the exclusion list used by the UK for its Seed Enterprise Investment Scheme (SEIS), upon which this tax incentive is broadly based. This again may be a potentially over restrictive approach.
There is no doubt that the proposed tax incentives for early stage investors will stimulate additional investment in small innovative companies. However, if the objective is to encourage more grass roots investment in startups by Australians, achieving the right balance between the incentive and integrity measures will be important.
The deadline for written submissions closed today, but those interested can still contact the NISA consultation team.
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