Coalition drops tax reforms meant to help startups

Norton Rose attorney predicts 'more cash flow crunches for startups.'
Coalition drops tax reforms meant to help startups

The Coalition has decided not to continue with two tax reforms expected to boost investment in Australian startups.

Over the weekend, Assistant Treasurer Arthur Sinodinos announced the government would move forward with 16 announced but unlegislated tax and superannuation measures. Two of the 48 that won’t move forward have implications for startups.

The first reform would have allowed R&D tax credits to be provided quarterly rather than yearly as it is now.

The second change would have allowed Australian domestic investors in venture capital funds to co-invest with offshore investors and secure the same tax outcome.

The Coalition dropped the reforms as part of a larger spring cleaning of tax changes that had been initially proposed by the Labor Government.

"We have delivered on our commitment to clear the backlog of tax measures and provide significant operational certainty for business and consumers," Sinodinos said in a statement announcing the changes.

However, not everyone shared the senator’s enthusiasm.

“Abandoning these reforms is a major setback for Australia’s innovation agenda,” said Yasser El-Ansary, CEO of the Australian Private Equity and Venture Capital Association Limited (AVCAL).

“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.”

Nick Abrahams, an attorney with Norton Rose who works on startup tax issues, told Techworld Australia that the change to R&D tax credits had been critical for early-stage startups and abandoning it “will lead to more cash flow crunches for startups.”

“For any early-stage company, cash flow is absolutely vital,” Abrahams said.

But with the R&D tax credits given out annually, companies get into a situation where they have earned a credit but won’t receive it for many months, he said.

“That may well mean the difference between success and failure,” he said. Because of the delay, the tax credit “may well arrive to an empty office.”

Many in the startup scene had voiced optimism about the change in government to the Coalition, with particular praise given to Communications Minister Malcolm Turnbull for his knowledge of technology and business.

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More about: AVCAL, AVCAL, Norton, Rose
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