Tax Incentives For Tech Startups

Further Steps To A Fintech Nation Could Mean More Incentives For Tech Startups

Tax Incentives For Tech Startups

The number of fintech companies has more than doubled in the past year.

To help Australia to become the “fintech nation”, further incentives are proposed such as enhanced testing concessions and greater access to investment.

Here we outline some of the tax changes designed to offer further support to fintech and innovation.

Back in 2016, the Government showed its support for innovation by proposing various tax incentives for early stage (angel) investors.

Recent developments show this commitment to innovation is real. Treasurer Scott Morrison has said that the impact of fintech will be felt as one of the “big productivity game changers”. Morrison added:

“… when you look that we’ll have our new real-time payments platform active and operational by the end of January, when you consider that we will have in place the world’s most forward leaning regulatory sandbox for fintech development, the pieces of the puzzle are coming together for financial services revolution in this country”

The latest draft legislation (now released for public consultation) in Australia is set to offer further incentives to investors to support innovative, high-growth potential start-ups. Incentives relate specifically to the Tax Incentive for Early Stage (angel) Investors and the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes.

Tax concessions

The Government says the fintech sector is currently restricted as the existing tax incentives for investors do not provide concessional tax treatment for VCLPs and ESVCLPs investing in start-up fintech firms. Consequently, the proposed amendments seek to ensure that start-up fintech companies can access the venture capital investment tax concessions by enabling ESVCLPs and VCLPs to invest in companies that have finance or insurance activities as their predominant activities, provided that they are early-stage companies.

Accessing support

So how do you find out if you are an early stage innovation company, or if the company you wish to invest in would be classed as early-stage? Speak to us if you need to make sense of the various investment tax exemptions, or to see if you qualify, as we may need to seek clarification from the ATO on your behalf.

The Treasurer said these amendments are designed to ensure that investors in fintech can access support under each program and rectify a number of minor technical issues. The amendments are also intended to ensure the tax measures operate consistently with their policy intent and continue to provide generous support to innovative Australian companies.

Enhanced regulatory sandbox

The ability to test out your new fintech offering or service is vital to ensure success. In support of this the Government is now consulting on an improved enhanced “regulatory sandbox”, aimed at financial services, to allow you to test financial services first – without a licence – over two years. Protections and disclosure requirements will be in place to protect consumers. The enhanced regulatory sandbox has two main aims:

  • to promote Australia’s fintech capability by supporting start-ups and innovative businesses to develop, test and launch their innovative financial and credit services and products under certain conditions; and
  • to strike a better balance between encouraging competition and innovation that delivers choice for consumers, while minimising risks to such consumers.

In addition, there are conditional exemptions from the Australian Financial Services Licence (AFSL) and Australian Credit Licence (ACL) requirements for the purposes of testing financial and credit services and products.

Want to find out more about incentives for tech startups?

Further incentives are likely to be forthcoming for fintech companies. We will keep you up to date as developments happen. In the meantime, if you are thinking of starting up a new digital business, launching a new financial product or service, or investing in one, and you want to make the most of the new incentives, talk to us first.

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.

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