03 May 2016

Australian Federal Budget 2016-17: Fintech

Early Stage Investors

The Government has introduced measures which demonstrate its commitment to ensuring early-stage innovative companies have access to investment capital. It is proposed that this be achieved through amendments to the Mid-Year Economic and Fiscal Outlook 2015-16 measure National Innovation and Science Agenda — tax incentives for angel investors.

The amendments seek to:

  • reduce the period of time required for investors to access the 10 year capital gains tax exemption from 3 years to 12 months;
  • amend the definition of “eligible start-ups” so that it includes a time limit on incorporation and includes criteria for determining whether the start-up is an innovation company;
  • require that the investor and innovation company are non-affiliates; and
  • limit the availability of tax offsets for non-sophisticated investors to an investment amount of $50,000 or less.

The Government has engaged in close consultation with stakeholders regarding these amendments. It is believed that these amendments will better target the incentives to ensure that investment is directed to those companies who face the greatest difficulty in accessing capital and business expertise, namely early-stage innovation.

Venture Capital

The Government has sought to attract more venture capital investment in Australia through an expansion of the funding arrangements.

This has been achieved through four key amendments. These are:

  • providing for conditionally registered funds that become unconditionally registered after 7 December 2015 to access the tax offset if the relevant criteria are met;
  • relaxing the reporting requirements for very small entities. They will no longer be required to provide an auditors’ statement of assets;
  • increasing the fund size from $100 million to $200 million for existing early-stage venture capital limited partnerships (ESVCLPs) (this previously only applied to new ESVCLPs); and
  • ensuring that the venture capital tax concessions are available for FinTech, banking and insurance related activities.

These amendments seek to improve access to capital and make the venture capital regimes in Australia more user-friendly.

Changes to GST for digital currencies

In addition the above investments, the Government will introduce changes to the GST to ensure that consumers are no longer double taxed when using digital currencies such as Bitcoin. Further information regarding these changes can be found in our GST article.

Investments in Fintech

The budget furthers the Government’s FinTech strategy of backing innovation in finance which was set out in its “Backing Australian FinTech” paper (see our Alert on this here). This is part of the Government’s National Innovation and Science Agenda. It is also part of its plan for a strong and vibrant FinTech industry, which is to drive expansion of Australia’s financial services exports across the Asia-Pacific region as well as the development of products and services, and the creation of value, in other sectors of the Australian economy.

There are three elements announced in the budget which are not related to taxation:

  • Blockchain The Government will encourage the exploration of Blockchain technology, a potentially fundamental evolution in financial services and markets (our explainer on Blockchain can be found here). A cornerstone of this is to be a study by the CSIRO’s Data 61. The importance of this work is likely to be enhanced by the fact that it is to include concurrent pilot testing of the technology, which could allow quick implementation by Australian innovators, FinTech startups and financial services firms. Initial consideration could be given to areas such as sharable registry information and verifiable supply chains.
  • Regulatory Sandbox In furtherance of the Government’s statements encouraging the development of a regulatory sandbox to facilitate the testing of new FinTech products in an environment which both encourages innovation whilst managing risk (see our Alert for more here, it has been announced that the Australian Securities and Investments Commission will release a consultation paper in the coming weeks. The concept is to provide an exemption to enable entrepreneurs to test ideas for up to six months with a limited number of retail clients and up to prescribed investment thresholds. Certain consumer protections will be maintained.
  • Promotion of Australia as a FinTech destination The Government will provide $0.2 million in 2016-17 to promote Australia internationally as a FinTech destination.

Key contacts

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