This client alert deals with the five key tax and regulatory measures in the 2015-16 Federal Budget (Budget) to support start-ups. Specifically:
- Deduction for professional costs for start-ups
- Crowd-sourced equity funding
- Legal structure change without CGT liability
- Employee share scheme tax concessions
- Streamlined business registration
1. Deduction for professional costs for start-ups
New start-ups will be able to immediately deduct professional costs associated with starting a business. This includes legal, accounting and other professional fees. Currently, most professional costs are deducted over a five year period. The rationale behind immediate deduction is to free up cash flow for new businesses.
This deduction will be available to start-ups from the 2015-16 income year.
2. Legal structure without CGT Liability
Businesses with an aggregate annual turnover of less than $2 million will be able to change legal structure without incurring a CGT liability at that point. For example, a start-up can change from a partnership to a proprietary company at the appropriate time to bring on equity investors, without incurring CGT liability for the founders. The government recognises that founders of new businesses might choose an initial legal structure to minimise costs or without advice that they later find does not suit them when the business is more established.
This measure will be available for businesses that change entity type from the 2016-17 income year.
3. Streamlined Business registration
Business registration will be streamlined with a single online registration site. The following business registration requirements will be available through one site:
- ABN registration
- GST registration
- Company registration
- PAYG withholding registration
- Business name registration
- FBT registration
This is expected to be implemented by mid-2016.
4. Crowd-sourced equity funding
The government has committed to enable crowd-sourced equity funding (CSEF) by removing some of the obstacles that limit access to CSEF for start-ups. The government has allocated $7.8 million in funding to the Australian Securities and Investments Commission (ASIC) over four years from 2015-16 to enable ASIC to implement and monitor a regulatory framework to facilitate the use of CSEF, including simplified reporting and disclosure requirements.
The government recognises CSEF as an emerging form of funding that will allow entrepreneurs to raise funds online from a large number of small investors. The government also recognises the potential CSEF has to increase funding options available for entrepreneurs to assist in the development of their business.
5. Employee share scheme tax concessions
Significant changes to employee share scheme rules were announced in October 2014. The changes were designed to make employee share schemes more attractive and accessible for all companies in Australia, and provide additional tax assistance to eligible companies through a start-up concession. The Budget contains further changes to the taxation of employee share schemes (ESS). The additional changes announced in the Budget will:
- exclude eligible venture capital investments from the aggregated turnover test and grouping rules (for the start-up concession);
- provide the CGT discount to ESS interests that are subject to the start-up concession, where options are converted into shares and the resulting shares are sold within 12 months of exercise; and
- allow the Commissioner to exercise a discretion in relation to the minimum three year holding period where there are circumstances outside the employee’s control that make it impossible for them to meet this criteria.
These changes will take effect from 1 July 2015, the date of commencement of the other changes proposed by the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 (Cth).
In addition to the specific changes above, the Treasurer, Mr Joe Hockey says the government will also consult “in the coming months” on the current framework that guides the establishment and regulation of corporations. He said the consultation will investigate whether some of the regulatory requirements can be removed or relaxed to reduce compliance costs and make it easier for small businesses to innovate, grow and create jobs. In particular, the Government plans to release a consultation paper on potential changes to the Corporations Act 2001 (Cth).
For more information, please contact:
Gaynor Tracey | Partner | +61 2 8248 5853 | firstname.lastname@example.org
Madeleine Kulakauskas | Senior Associate | +61 2 8248 3472 | email@example.com