During the 2016-17 budget, the government announced it would introduce reforms to the tax incentives for venture capital and early stage investors eyeing fintech businesses.
The draft legislation covers amendments to the Tax Incentive for Early Stage (angel) Investors and the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes.
The fintech sector is currently restricted as the existing tax incentive for investors does not provide concessional tax treatment for VCLPs and ESVCLPs investing in start-up fintech firms.
The proposed new law will ensure that ESVCLPs and VCLPs are able to invest in companies that have finance or insurance activities as their predominant activities provided that they are early stage companies.
The requirements for an early stage company are broadly similar to that of an early stage innovation company for the purposes of the early stage investor tax offset.
Minor technical changes are made to the venture capital and early stage investor provisions to ensure they operate as intended with respect to CGT transactions, MITs, and the early stage investor tax offset.
The CGT provision has been amended to require a valuation capital gain to be determined based on what the capital proceeds would have been, and other matters relating to the amount of the gain, determined on a reasonable basis as if the events resulted in the gain happening at the end of the period six months after the end of the relevant valuation year.
The announcement comes after Treasurer Scott Morrison said adopting fintech would be one of the “big productivity game changers” across various industries, including accounting and financial services.
“One of the areas that I'm particularly passionate about is fintech and it's not because I like hanging out with people who wear t-shirts, have beards and look a lot like baristas. It's because they are on the cusp of one of the biggest changes to our banking and financial system in generations,” Mr Morrison said.
“The technology is exciting, it can be distracting, it can sometimes, if not often, over-promise and under-deliver. But at the same time it is very hard not to appreciate the potential."
Interested stakeholders have been encouraged to make submissions during the consultation period by 10 November.