Introduced almost two years ago, the angel investor tax incentive scheme hasn’t quite lived up to expectations. The $100 million dollar scheme was part of the governments $1 billion National Innovation and Science Agenda that they released at the end of 2015.
It gives savvy investors every reason to back Australian startups. Firstly, investors will receive an immediate tax deduction equal to 20% of their investment. Over the long term they won’t be hit with capital gains tax, as long as they sell their shares within ten years.
In order for the start up to be eligible and the investor to be able to claim the incentives there are four requirements. Firstly, the company must be incorporated or register in the Australian Business Register. The company and any wholly-owned subsidiaries must have total expenses of $1 million or less in the previous income year, and an income of $200,000 or less in the previous income year. Finally, the company’s equity interests can’t be listed for quotation in the official list of any stock exchange, either in Australia or a foreign country.
The scheme based on a very successful UK version
The scheme was based on a very successful UK version. The UK government were very open with sharing statistics around their program, however, to date the ATO hasn’t. While they are collecting large volumes of data, that isn’t being shared openly. We are yet to understand the volume of investors or companies that have utilised the program or the amount of investment that has been funded.
However a crossroads report suggests that angel investing fell by 46% in FY16-17 in Australia. We are waiting on data for FY17-18 to see if this has improved.
So has the incentive helped investing or not?
With little or no reporting released by the ATO it is hard to tell whether the scheme has been effective and how much it is costing the Australian tax payer.
Start ups, particularly in the tech and innovation space often require large amounts of capital in order to take their idea to production before they have even found their first customer. Having angel investment capital can mean the difference of an idea being left on the cutting room floor or blooming into existence.
To see the full list of requirements see the ATO page here.