The Turnbull Government has drafted legislative reforms to support investment in innovative fintech companies by venture capital and angel investors, Treasurer Scott Morrison has announced.
Released yesterday for a public consultation period ending Friday, 10 November, the exposure draft of the Treasury Laws Amendment (2017 Measures No. #) Bill 2017 proposes amendments to the Tax Incentive for Early Stage (angel) Investors as well as the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes.
According to the Treasurer, the amendments will ensure “tax measures… continue to provide generous and effective support to innovative Australian companies” by ensuring investments in fintech businesses are eligible for support under each program.
He added, “The proposed amendments highlight the Turnbull Government’s commitment to promoting innovation, by incentivising investors to support innovative, high-growth potential start-ups.”
The exposure draft explanatory material, which is also subject to the public consultation period, explains that a restriction on Australia’s fintech sector being more internationally competitive is the fact that venture capital and early stage (angel) investors do not receive concessional tax treatment for investing in fintech startups.
“Currently, for the purposes of the venture capital tax concessions, both finance (to the extent it consists of banking, providing capital, leasing, factoring and securitisation) and insurance are ineligible activities,” the document states. “This means there is uncertainty whether investments in companies and unit trusts that, broadly, have such activities as part of their predominant activities are eligible venture capital investments. This uncertainty prevents VCLPs and ECVLPs making such investments and therefore limits sources of venture capital for start-up fintech firms.
“Amendments are made [to the venture capital tax concession and early stage investor provisions of the Income Tax Assessment Act 1997] to ensure that start-up fintech businesses can access the venture capital investment tax concessions. This is done 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.”
Further information, including details on participating in the public consultation process, are available from the Treasury website.