Encouraging Innovation? Assessing Subdivision 360-A's tax incentives

Graw, Stephen (2019) Encouraging Innovation? Assessing Subdivision 360-A's tax incentives. Australian Tax Forum, 34 (2). pp. 233-275.

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Data from tax returns lodged in 2016-17, the first year in which Subdivision 360-A's tax incentives for investments in early stage innovation companies were available, shows that approximately $300m was invested in some 340 early stage innovation companies by a total of around 3400 'angel investors'. The data does not however indicate how much of that was invested because of the tax incentives and how much would, in all probability, have been invested anyway. The incentives, a non-refundable carry-forward tax offset of 20% of the value of the investment (up to a maximum tax offset cap of $200,000) and a 'modified CGT treatment' (which disregards any capital gains realised when the shares are disposed of – provided they have been held for between one and ten years), are, on their face, generous. There are, however, a number of problems with the legislation which make its provisions administratively more complex than they should be and practically less attractive than they could be. One of those problems, a practical clawback of the benefits of the modified CGT treatment if the initial investment was made through a fixed trust, has already been identified and rectified. Other problems are being addressed by the Treasury Laws Amendment (2018 Measures No 2) Bill 2018 – which, if it is passed, is intended to take effect for income years commencing on or after 1 July 2018. This paper examines the reasons for the original reforms, their object and the extent to which continuing eligibility restrictions and other practical constraints and limitations are likely to restrict how well the legislation can achieve its aims.

Item ID: 58903
Item Type: Article (Research - C1)
ISSN: 0812-695X
Keywords: early stage innovation companies; ESIC; tax incentives; tax offset; modified CGT treatment; angel investors; valley of death, subdiv 360-A
Date Deposited: 27 Nov 2019 02:29
FoR Codes: 48 LAW AND LEGAL STUDIES > 4801 Commercial law > 480106 Taxation law @ 100%
SEO Codes: 94 LAW, POLITICS AND COMMUNITY SERVICES > 9499 Other Law, Politics and Community Services > 949999 Law, Politics and Community Services not elsewhere classified @ 100%
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