Funding for start-ups in Australia has almost dried up as investors hold back their cash in the hope of gaining from new tax reliefs.
Entrepreneurs seeking cash fear the government announcement of the new tax saving opportunity too far in advance of starting the scheme has left them high and dry.
Based on the British Seed Enterprise Investment Scheme (SEIS) which rewards investors with generous tax breaks for risking cash in startups, the Australian innovation scheme also promises tax advantages to investors.
The problem in Australia is the details of the scheme are still awaited and the tax benefits are not expected to kick in before the start of the financial year on July 1.
The indication is investors will pick up a 20% tax refund the value of money pumped into a startup plus a 10-year capital gains tax exemption, providing any shares in startup companies are held for at least three years.
Kick start falls flat
The government announced the kick start for Australian startups in December with the result that investors are sitting tight on their cash waiting for the tax reliefs rather than putting the money to work.
“This is an unintended consequence resulting from the timing of the announcement,” said startup fund manager Andrew Coppin.
“The government needs to address this as a matter of urgency because entrepreneurs will face delays and may go to the wall over this.”
Fund managers are reporting entrepreneurs are good to go with business plans at the ready but are faced by an investment drought.
Difficult point to argue
“Investors are saying why should they put their money up now when they can pick up such good tax write-downs if they delay a few months and it’s difficult to argue the point,” said Coppin.
The Australian government wants to diversify the nation’s economy away from a reliance on mining.
The tax breaks are part of a wider campaign to encourage entrepreneurs to start businesses in other sectors.
In the UK, SEIS has seen £250 million raised for almost 3,000 companies in two years.
The real success of SEIS will be gauged from April 2016, when the scheme is three years old and the first seedling companies come out of their tax incubator.
