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A Future of Greater Innovation in Australia

August 18th, 2016

July Brings New Tax Incentives

As of July this year, young companies focused on innovation have greater hope for expansion. To elaborate, the new tax incentives for Early Stage Innovation Companies (ESICs) provide a maximum 20% offset for qualifying expenses capping at $200,000 each year for the investor and affiliates. The measures are ultimately a triumph for the Australian startup ecosystem and will aid in increasing the amount of capital available to Australian startups. It is important to note that this cap does not impact the quantity of qualifying shares for CGT.

How Does the ESIC Incentive Impact R&D in Australia?

By incentivising young companies driven by innovation, not only will ESICs hit the ground running, but their larger competitors will be forced to innovate as well. With this in mind, it is expected that there will be an increase in R&D as companies are influenced by the improvement of market contenders.

Could Innovation Have Greater Support?

Australia’s Steve Baxter believes so. As he outlined in the Financial Review, there are three important components of improving innovation in the Australian economy.  Firstly, as young companies are often fueled by young minds, Baxter recommends including a HECS waiver for graduates joining the innovation workforce to increase the number of people choosing to seek higher education.

Secondly, Baxter believes professionals currently working in innovation should be encouraged to further their education. In promoting education and specialisation by wavering HECS payments, the country would decrease the risk of losing bright, innovative minds to other countries.

Thirdly, Baxter recommends implementing quarterly R&D claims rather than annual. This would allow ESICs to make use of increased cash flow, which in turn, would accelerate growth rates and create greater security for companies to plan future R&D.

As successful ESICs mature out of the title, Steve Baxter highlights the importance of continuing support by offering a grandfather arrangement. After all, if growth is the goal, how could retracting support to an advancing company be beneficial to the economy?

Investing in Innovation

As legislation currently stands, Australia can expect an increase in R&D investment from both ESICs and more established market competitors. The ESIC tax incentive also has created substantial opportunity for companies to enter the market. Furthermore, when deliberating other tax incentives available, such as the research and development (R&D) tax incentive, the enticement to innovate in Australia is escalating.  Thus, in response to a growing marketplace, Steve Baxter hopes that Australia will see the value in continuing to invest in the minds and established companies of the innovation sector.

If you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.