Paving The Way To Innovate - 15 September 2017
Innovation is fundamental to drive future productivity in Australia.
Readily available finance is critical to make this possible, especially if you plan a start-up and absolutely vital if your venture is a new fintech (financial technology) company. Here we explore some of the recent legal changes which could help pave the way to a successful fintech business or early-stage innovative start-up.
A recent report predicted that fintech sector revenues will see rapid growth of 75% each year reaching a value of $4.2 billion by 2020. The Government took steps in 2016 and 2017 to help early-stage innovation companies (ESICs) and fintech businesses.
If you want to capitalise on the benefits available, we can help you to understand changes to the rules and to the tax law.
Back in 2016, the Government showed its support for such innovation by proposing:
- 2016 tax incentives for early-stage investors;
- amendments to the venture capital measures to assist with raising funds;
- to limit the requirement for employee share scheme (ESS) disclosure documents to be made public by start-ups;
- to relax the “same business test” by introducing a “similar business test”; and
- to allow taxpayers to assess the effective life of most intangible depreciating assets.
You may want to work out if you are an early-stage innovation company (it might be appropriate to gain clarification on this from us). Alternatively, you may wish to invest in such a company. Speak to us if you need to make sense of the various investment tax exemptions, including the 20% tax offset for early-stage investments and the CGT exemption for direct and indirect investments.
Fintech versus traditional banking
Fintech start-ups are set to redefine financial services and the way in which we save, borrow, and invest money. The Government has shown that it wants to break down current barriers to welcome new financial services into the marketplace. Existing barriers include the limitation on closely-held ownership in the banking sector, prohibition on the use of the word ‘bank’, and complex bank licensing processes. Working with APRA, the Government will remove such barriers to foster greater competition in the market. This will lead to lower prices, better service and greater banking choice for customers.
Building on earlier incentives
To help Australia become “the innovation and fintech nation”, the Treasury’s media release in May 2017 described further incentives. These are summarised below.
Crowd-sourced funding made easier
Recent draft legislation proposes to open up crowd-sourced funding (CSEF) to a wider range of businesses providing additional sources of capital. Proprietary companies who use this form of funding can have an unlimited number of shareholders. Such shareholders will be protected by the higher governance and reporting obligations that CSEF proprietary companies are obliged to meet, which includes:
- having a minimum of two directors;
- conducting financial reporting in accordance with accounting standards;
- meeting audit requirements;
- observing restrictions on related party transactions; and
- granting minimum shareholder rights to participate in exit events.
Removing double taxation
In the past, purchasers of digital currency have paid goods and services tax (GST) twice, first on the initial purchase and again on the exchange of such currency for other goods or services subject to GST. From 1 July, if you are buying digital currency, you will not have to pay GST on any purchases of digital currency you make. This will make it easier to operate if you are dealing in digital currency.
Testing makes perfect
Being able to test out your new fintech offering or service is vital to ensure your success. In support of this, the Government will introduce an improved regulatory “sandbox”, aimed at financial services, to allow you to test such services first – without a licence – in a timeframe over two years. Protections and disclosure requirements will be in place to safeguard consumers.
By collaborating with Innovation and Science Australia, the Government will develop a Research Infrastructure Investment Plan and a 2030 Strategic Plan for Australia to further support the economy and promote innovation.
Want to find out more?
Further incentives are likely to be forthcoming to early-stage innovation, especially within the fintech sector. We will keep you abreast of such changes as they happen.
If you are thinking of starting up a new digital business, if you plan to launch a new financial product or service, or to invest in one, and you want to make the most of the new incentives, talk to us first.
15 September 2017
For expert advice and assistance in dealing with your Business Employment Taxes in Australia, please contact Mathews Tax Lawyers on 1800 685 829
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.