Innovation statement released: SMEs among the winners

The federal government has unveiled its long-awaited $1 billion innovation statement in a bid to foster greater collaboration between small businesses and the public sector.

Prime Minister Malcolm Turnbull said this afternoon that he hoped the National Innovation and Science Agenda would encourage every business – big and small – to “have a go”.

“You will see measures here to make it much easier for small businesses to sell to government,” Turnbull said.

“There is too much red tape. We can sweep that aside… and government has to lead the way.”

Here are the key policies set to affect SMEs in the federal government’s innovation statement:

1. Digital marketplace

The federal government will create what it is calling a “Digital Marketplace” to give SMEs and startups improved access to win contracts for the $5 billion a year the government spends on IT.

“Currently, startups and small to medium suppliers of digital services find it difficult to participate in Australian Government procurements for large scale IT solutions,” the innovation statement said.

The marketplace will be based on a similar scheme in the UK, with a prototype to be available in 2016.

The government said large scale IT projects will be broken into smaller components to allow for “greater scope of innovation”, businesses will be able to join the marketplace easily and government departments will be able to use the marketplace as a directory to find service providers.

2. Increasing access to company losses

As part of its innovation agenda, the government said it will relax the “same business test” that currently applies to companies accessing company losses when making “minor changes to their operations” and replace it will a more flexible “predominantly similar business test”.

“When companies make a loss, they can be discouraged from taking the leap and exploring other profit-making activities for the reasonable fear that they will be denied access to valuable prior-year tax losses,” the government said.

“The ability to offset losses against other profits is particularly important for small innovative companies because they have less diverse income streams and cash flow than established businesses.”

Under the new test, the government said loss-making companies will be able to enter into new business activities and transactions without facing a tax penalty.

The “predominantly similar business test” will apply to losses made in the current and future income years, while current tests will apply to any existing loans.

3. Reform to insolvency laws

Recognising that many entrepreneurs fail several times before they succeed, the government will alter the current insolvency laws to strike “a better balance between encouraging entrepreneurship and protecting creditors”.

The government will reduce the current default bankruptcy period from three years to one year; introduce a “safe harbour” to protect directors from personal liability for insolvent trading if a restructuring adviser is appointed to help turn the company around; and make “ipso facto” clauses that terminate contracts solely on an insolvency event unenforceable if a company is being restructured.

“Our current insolvency laws put too much focus on penalising and stigmatising the failures,” the government said.

A proposal paper for the changes will be released in 2016, ahead of plans to introduce legislation in mid-2017.

Love the insolvency stuff and the removal of the ‘ipso facto’ clauses when a business hits a bit of trouble, that is nice.

— Steve Baxter (@sbxr) December 7, 2015

4. Intangible asset depreciation

The Government has decided to change the tax treatment for acquired intangible assets in order to help companies market their intellectual property and encourage investment.

From 1 July 2016, there will be a new option to self-assess the tax effective life of acquired intangible assets.

“Innovative companies are more likely to have many intangible or knowledge-based assets – such as patents, trademarks, copyrights and business models – and investment in these assets is crucial to their innovation and growth,” the government said.

5. Tax incentives for investors

The Turnbull government has promised to tweak the taxation system in a bid to help fast-growing businesses get off the ground.

Investors who put their money into new businesses will be eligible for a 20% non-refundable tax offset based on the amount of their investment, which will be capped at $200,000 per year.

The government is also offering a 10-year capital gains tax exemption for investments held for three years. The measures will affect investors who have poured their money into businesses that have incorporated during the last three income years, aren’t listed on the stock exchange and have an income of less than $200,000.

“Over 4500 startups are missing out on equity finance and additional funding each year,” the government said.

“This is not just a barrier to innovation, but a loss for Australia.”

6. Business research and innovation initiative

The government said it wants to spend its research money more wisely.

At the moment, the federal government spends about $50 billion a year on procurement in Australia, but ranks 77th out of 144 countries when it comes to innovation.

To help close the gap, the government is offering grants of up to $100,000 for entrepreneurs to test their ideas over three to six months, with the most successful ideas eligible for a further grant of up to $1 million. The grants will be available from 1 July 2016.

“Rather than procuring existing products, we’re encouraging businesses to develop more innovative solutions to important government policy and service delivery problems,” the innovation statement reads.

“Entrepreneurs will receive funding to create new products and innovations with export potential, while retaining their intellectual property and the right to commercialise the ideas in Australia or overseas.”

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