Innovation statement – dangling the carrot, will you bite

Innovation statement sets the new agenda

In today’s Innovation Statement, Prime Minister Malcolm Turnbull set a new agenda for the nation to focus on a culture of embracing ideas, embracing risk and embracing the concept that it is ok to fail (so long as you learn from it and get back on the horse).
His slogan “Welcome to the Ideas Boom” says it all.  Now it is up to the nations citizens to heed the call to action, take advantage of the incentives on offer, and make those dreams come true.

Key Innovation Statement announcements most relevant to those considering starting a business

Tax Incentives for Investors

This is the one that will gain the most initial interest.
The National Innovation and Science Agenda website provides that the incentive will be available for investments in companies that:

• undertake an eligible business (scope to be determined)
• that were incorporated during the last three income years
• aren’t listed on any stock exchange
• have expenditure and income of less than $1 million and $200,000 in the previous income year respectively.

The incentive will include:

• A “non-refundable” tax offset equal to 20% of the investment made, up to an investment limit of $200,000.  Being a non-refundable tax offset, you must have a tax liability to take advantage of this incentive.  You will be able to save up to $40,000 in tax in any one year, and
• A 10 year capital gains tax exemption for investments held for 3 years.

Obviously the posses a lot of questions, but the early signs certainly look good.

Depreciation of Intangible Assets to become more Flexible

When determining depreciation on tangible assets (ie. plant & machinery) options exist to self-assess the useful life where the statutory prescribed rate is inappropriate.  Such flexibility will now also be introduced for intangible assets.

Access to Company Losses to be Extended

Currently using losses previously incurred to offset future profits is a surprising difficult affair.  Many a company have unwittingly discovered that those losses they made in the early years are no longer available to be offset against the profits the company has finally been able to deliver.
In order to improve this situation, and extend the availability of those losses, the Innovation Statement has announced the replacement of the “Same Business Test” with a new “Predominantly Similar Business Test”!
The cynics amongst us may suggest that seems likely a fairly ambiguous concept, and we will be very interested to see how it will be implemented, but we can’t argue with the sentiment.

Changes to Insolvency Laws

The final announcement that really caught our eye is the proposed changes to Australia’s insolvency laws.  The key elements being:

• Reducing the current default bankruptcy period from three years to one year – This means if you are unlucky enough to be involved in a failed venture, it doesn’t haunt you for long than it needs and you have the opportunity to get back on the horse and try again.
• introducing a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company – Directors can be held personally liable for a company’s debts if they are proven to have allowed it to trade while insolvent.  Accordingly Directors are risk averse and will either avoid taking on such a role in the first place, or place a company into liquidation at the first sign of trouble to avoid person risk.  This safe harbour will make it more attractive for individuals to take on Director roles, and to work through tough times.
• Making ‘ipso facto’ clauses unenforceable if a company is undertaking a restructure – Most contracts these days include a clause that says the contract is null and void if one of the parties goes into liquidation or similar.  These are referred to as ipso facto clauses.  The announcement provides that such clauses will be unenforceable if the company chooses to undertake some form of restructure (and therefore is aiming to work through its difficulties with the view to coming out the other side).  An article covering the argument for removing such clauses was included in the Australia Financial Review in January this year.

Now I know that whenever I am talking to a client considering a new venture I advise to “plan to succeed not to fail”, but it will be comforting to know these protections will exist if things don’t work out.  It will also make it just that little bit easier to find an experienced, independent individual who can join the business and perhaps help take it to that next level.

Plenty more details to come

Today’s Innovation Statement is a great start, but the reality is it is just designed to whet the appetite at this stage.  Legislation enacting these announcements is still to come and as always the devil will be in the detail.  We will be keeping abreast of the developments, so if you are starting to think about making that big step into the world of entrepreneurialism and business start-ups, speak to us and we will help guide your way.
In the meantime to learn more about today’s Innovation Statement visit the Prime Ministers and the National Innovation and Science Agenda websites.