While the 2014 Australian Budget focussed on belt-tightening and a reduction in spending, widely derided as unfair and targeting those least able to absorb such cuts, the 2015 Budget has been framed to highlight a core message – fairness. As Alan Kohler described it on ABC post-budget coverage, “an apology for last year.” Where 2014 focussed on wait times of welfare, cuts to pensions, deregulation of higher education and various other related measures, this year the centrepieces have been childcare and family benefits, along with small business tax cuts and an increase in funding for national security. However, one area that is perhaps of special interest to the readership of the Canberra Entrepreneur is the suite of measures and initiatives to foster entrepreneurial activity.
Labelling Australia a “nation of entrepreneurs,” the 2015 Budget includes features related to deductibility of start-up expenses, changes to business registration designed to save time and money, alterations to employee share ownership schemes and incentives, and a focus on crowd-sourcing of funding during start-up phase. These are all intended to drive the rate of start-ups, and in the hopes of the government, expand the Australian economy and jobs market.
I will address each of these measures separately, though briefly (can’t have this article turn into an essay). First up, deductibility of start-up expenses. As anyone who has ever tried to start a business knows (in my case only too well, as I am currently in the process of founding a new business), there is a broad range of expenses associated with start-up. Lawyers, accountants and financial advisers are often involved, helping to establish a corporate structure, oversee contracts and ensure all aspects of employment and corporate law are adhered to. These may represent a huge portion of initial costs. Under these measures, they can now be written off immediately, instead of having to wait until tax time or depreciate over a period of time. I imagine this measure is likely designed as one side of a coin, with the other allowing for business purchases under $20,000 now also immediately 100% deductible. While this second measure applies to all business, not just new ventures, for start-ups they will likely act in tandem. Though notably, the Rudd Government previously put this deductibility of business assets/purchases in place during the GFC, only for the current government to scrap it in a bid to save money.
The changes to business registration and red tape reduction are perhaps one of the drier aspects of the suite of entrepreneurial measures. Essentially, the government will use a new website, business.gov.au, which will allow new start-ups to only enter their details once to receive an ABN, register the company, register for GST etc. It will also allow for the ABN to act as a singular identified for a business, rather than the current system which requires an Australian Company Number and Business Tax File Number. Now the devil is ensuring the website functions as designed (hello American experience in central healthcare websites).
Under current laws, start-ups, as well as established firms, which seek to offer employee share schemes face a range of tax implications. Most restrictive is that employees who receive such shares are immediately liable to pay income tax on the value of these shares, even though no value has been gained. These changes broadly shift the tax implications to once a monetary gain has been realised. I won’t go into too much detail, but there also a number of changes regarding start-ups offering staff a discount to purchase such shares, and the tax implications this raises for both business and employee.
One the largest inhibitors to start-ups and companies accessing crowd funding revolves around the legal requirements and restrictions of operating as a proprietary company, as well as the huge complexity of attempting to instead transition to, and operate as, a public company. Operating as a public company is difficult, given the additional reporting and disclosure requirements, and is therefore largely a domain of larger businesses. Under the arrangements Treasurer Joe Hockey has claimed will benefit start-ups and new ventures which rely on such funding sources, it will be made easier to move towards public status, enabling access to crowd funding, which it is claimed will reduce costs associated with the move while also maintaining protection for investors. However just what is to be done is rather ill-defined on current information easily accessible and available, instead simply making claims that things will be easier without saying how and why. Crowd funding is already proving to be a revolutionary source of funding, providing new avenues towards capital removed from the old confines of business loans. However, I will wait for more detail to see how this will actually work in practice.
Australian governments, at both a state and federal level, are constantly announcing new measures claimed to assist entrepreneurs and provide a fertile environment for the start-up culture to thrive. Some do help, while others are of limited value at best. I’m not going to do a whole history, given this article is about this budget. From my viewpoint, I can certainly see the deductibility of establishment costs and asset purchases as being extremely helpful for start-ups. Reducing the initial cost burden of new business will hopefully lead to less failure due to over extension of capital and financing. Similarly, if the new business.gov.au website actually works properly, and provides a streamlined system, then great – less times, less energy, less cost. Also, I should mention the cut in small business tax rates. But in other areas, I think the devil will be in the detail, and whether the claims made in Hockey’s speech and documents actually play out in reality. Will the crowd funding changes actually make it easier? I don’t know on available information. And call me a cynic, but governments are almost always behind the times. I am naturally suspicious that they are able to really understand initiatives such as crowd funding enough to harness them, and design measures around them. I hope to be proved wrong, but I await the proof.