For all the pollies talk of innovation-this and innovation-that you'd be forgiven for thinking the road was littered with free cash for entrepreneurial types to start new businesses. It is and it isn't. In this article we'll run through what incentives are actually available for startups.
Immediate write-off for setup costs
When you're setting up your new company you'll no doubt incur fees to setup the company up, legal fees in relation to shareholders agreements and other professional fees and charges required to get your new venture off the ground. From 1 July 2015 you're able to claim a tax deduction for all these costs when your company lodges its first tax return which is way better than previously where you were required to claim the costs over 5 years (if you could claim them at all).
Research & Development Tax Incentive
The R&D tax incentive has been around for a while now in various guises and it seeks to encourage businesses to spend money researching and developing new ways of doing things, new technology, etc. The funding is to support experimental activities, ones where the outcome is unknown. Currently the incentive offers companies with a turnover of under $20 million the opportunity to receive a refundable tax offset equal to 43.5% of total expenditure. Not bad!
If your startup is creating new technology then this incentive can be a fantastic way to fund development of your product and make that runway just that little bit longer.
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Export Market Development Grant
Are you looking to promote your product overseas? Looking at setting up stands at conferences? Concerned about how much this will cost? This is where the EMDG can step in to help cover some of these costs. This grant reimburses up to 50% of eligible costs in relation to promoting your product in overseas markets. You can find out more information here.
Employee share and option plans
Australia doesn't have a great rep when it comes to taxing shares and options issued to employees. Traditionally we've taxed the market value of anything received at no price at the time of vesting - not a great outcome for someone getting remunerated primarily in free shares or options with no spare cash to pay tax bills.
For eligible startups there are now some concessions available. They aren't perfect, but they are definitely a step forward. The main things to know:
- shares are not taxed until sold as long as the discount given to the staff member doesn't exceed 15%, and
- options are not taxed until the underlying shares are sold as long as the options are issued 'out of the money'
Obviously there are other conditions to worry about, but those two are the big ones to remember. The small discount available to use for shares doesn't really make it an attractive way to go, but the use of options can result in quite a tax effective outcome.
This government program seeks to give not only funding, but access to expert advice, to support your businesses plans to commercialise your unique product or service. This program can be hugely beneficial if you're able to get access. Best check out the relevant government website for more information around eligibility.
Tax incentives for early-stage investors
If your business counts as an 'early stage investment company' then your investors might be eligible for some generous tax concessions which can help you attract investment for your new startup.
Obviously conditions abound, but these are the two main concessions available:
- non-refundable tax offset equal to 20% of the amount invested. This means the investor gets a reduction in their tax bill for 20% of whatever they invest in the year they make the investment. The offset is limited to $200,000 per year per investor.
- modified capital gains tax (CGT) treatment. If the investor holds the shares for more than 12 months but less than 10 years they may be able to disregard any capital gain made, i.e. it'll be tax free! Not bad, but it is a double-edged sword - any capital losses on these investments are also disregarded.
There are other bits and pieces around, but these are the main ones that we see on a regular basis here at the Generate offices. If you'd like to have a chat about accessing these incentives for your startup, why not drop us a line? We'd love to help.