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We normally don’t bother analyzing or talking about these sorts of announcements until they become law, because so many fiscal announcements have failed to proceed into legislation in the recent past - particularly since the budget before last.

However, we think this announced policy could offer some significant benefits to some clients and as a result is worth following more closely. It’s a pleasant surprise to us to finally see an intention to introduce incentives that may be a benefit to a number of small businesses.

Encouragingly the innovation measures announced are similar to the sorts of tax incentives the UK Cameron Government has introduced, which have successfully kick started a vibrant ‘fintech’sector in the UK. Cameron has been successful by making it more ‘tax–wise’ for those with capital to make new investments in new business ventures instead of investing in real estate or share portfolio’s.

What was the Turnbull announcement about?

We have collated below a bullet point summary for your convenience:

• An investor in a “start up business” will be able to claim an income tax rebate of 20% of the investment amount in the ‘start up’ - up to a limit of $200,000.So if you have a tax bill of $20,000 and make a qualified investment of $100,000 – you will get a rebate of $20,000 that you can use to reduce this income tax bill. A rebate reduces your tax bill. It is only of value if you have a tax bill.
• Will you be able to carry forward the rebate if you can’t use it all in a specific year? It’s not clear yet - unlikely but we will see.
• What qualifies as an investment? Probably nothing of a loan character, but instead an investment of equity,  where you have no security or loan agreement. Your equity investment capital is paid back, if you sell your Shares or Units (equity) in the business, for same or better value than your initial investment.
• Will the investor providing the Capital and owning the equity in the new venture need to be the same entity as the entity claiming the tax rebate?Likely but we will have to wait to see more about this.
• If you don’t pay tax can you get the rebate refunded? No – that much was announced. So it’s not much good to people who don’t pay tax – like self funded retirees.
• A new Capital Gains tax exemption has been announced in this Innovation Policy – If you hold the equity you buy / invest for 3 years or more, your tax exemption is 100%.
• An investor in a ‘start up’ wanting to expand can get 10% income tax rebate on similar methodology as the start up tax rebate. No details are available on this yet.
• What is an eligible ‘start up’? This is still to be defined. But so far:
• The new business must be incorporated in the last 3 years (no dates given yet). So if you start a new company this is OK.
• The new company must not be listed on a stock exchange. So a normal private company is OK.
• The new company must have income of less than $1M in the 2 prior years.
• The new company must have expenses of less than $200,000 in the 2 prior years.

More questions to be answered yet

We can’t yet say for certain exactly how these new Turnbull Government measures are going to work, or whether they will be designed so as to be genuinely an incentive for small business persons who want or need to invest more capital in their business arrangements.

We need to see the exact legislation and treatment of things such as:

1. What types of investments will NOT qualify for the tax benefit available to new investment in new business or in innovation. Is a new machine that drives a new or improved service a qualified investment?
2. Can persons with business income from related businesses use the incentives? What limits are there on this?
3. When will it start – do investments made in 2016FY count?
4. What alternatives are there already in the tax system that we should not overlook? For instance some capital investments within an existing business can benefit from accelerated depreciation that can amount to more than the 20% rebate.

So we will be watching this closely as more emerges , and we will write another article on how you can make use of these new incentives, when they are law.

Ascendia Tax Management and Planning

As well as our accounting and tax preparation services Ascendia Accountants provide comprehensive tax estimates, planning and advice services that can save you a lot of tax.

Saving on tax should not be something you think about once a year. If you want to benefit the most that you can, a business planning process that involves thinking about your affairs and plans over the next few years is likely to unlock significant savings.

For all tax planning matters, call Andre, David, Angela or Chris on 07 5343 1000.