Abandoned tax reforms hit Aussie startups hard

Reforms in Australia's tax system that could have helped the startup scene in Australia have been abandoned, making future investments in new businesses a risk.

AVCAL's submission to the future Financial System Inquiry slated for 2014.
(Credit: AVCAL)

The Australian government's Assistant Treasurer Arthur Sinodinos passed through a raft of taxation and superannuation adjustments into law over the weekend, but set aside two measures in a wider range of reforms that would have made it easier for Australian startups to grow.

One of the measures dismissed would have allowed new businesses engaged in research and development to claim tax credits quarterly. This would have helped cash flow for startups that struggle to make it to the end of their first reporting period for tax credits, which can be as long as 16 months.

The other denied measure that could have directly influenced startup success was a lowering of the Early Stage Venture Capital Limited Partnership (ESVCLP) requirement from AU$10 milion to AU$5 million, and combining both early stage and general venture capital partnerships.

The Australian Private Equity & Venture Capital Association (AVCAL), representing Australia's venture capital industry members, said the two reforms would have been a boon for startups and investors alike. "Abandoning these reforms is a major setback for Australia's innovation agenda," said AVCAL's CEO, Yasser El-Ansary.

"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."

AVCAL will continue to push for the reforms to be passed. Until then, it says, Australia faces an "innovation deficit" that will impact future research and development and the success of Australian startups.

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