Failure – the new “black”? National Innovation and Science Statement in a Nutshell

msi - lachlan commins1By Lachlan Commins, Patterson Houen Commins, Lawyers, Sydney.

OK Australia, let’s get ready to fail. That’s the message from the top it seems.

On Monday 07 December, 2015, Prime Minister Malcolm Turnbull unveiled the government’s ‘$1.1 billion-over-four-years’ National Innovation and Science Agenda in a statement delivered at the CSIRO headquarters in Canberra.

Mr Turnbull was quoted as saying that “[s]ometimes entrepreneurs will fail several times before they succeed and will usually learn more from failure than success”. This entrepreneurial spirit and its inherent acceptance of risk – and failure – is something which perhaps has been absent in recent times from the Australian collective psyche. However, with the release of his government’s new innovation plan, Mr Turnbull aims to unleash “big cultural change” by leading Australia down the path towards an “innovation nation”. Naturally, such unchartered territory will mean that Australians must accept and to some extent embrace risk. On this point, Mr Turnbull has pledged that his government will lead the way in order to be “as agile as the start-up businesses it seeks to inspire”.

In a nutshell, the plan involves:

Tax benefits for investments in start-ups:

    • 20 per cent tax income tax rebate for retail investors (as opposed to tax deduction), limited to $200,000 per year and full capital gains tax exemption when they sell the shares after 3 years and not longer than 10 years. For example if someone invests the maximum allowed of $1 million and claims the offset they will reduce their income tax by $200,000; if they then sell their shares three years later, their initial $1 million will be exempt from capital gains tax.
    • 10 per cent tax rebate for capital invested in new Early Stage Venture Capital Limited Partnerships (ESVCLP).

Which start-ups are eligible:

Although the definition of an eligible start-up is still to be finalised, the details so far are that it must have been incorporated in the past three financial years, not listed on any stock exchange, and have expenditure of less than $1million and income of $200,000 respectively in the previous year. Further, the sorts of business activities that will be eligible will be determined in consultations with industry, with pressure coming from venture capitalists for the government to target the incentive to truly innovative businesses in industries such as information technology and biotechnology.

Change to bankruptcy laws to mitigate the cost of failure and encourage risk-taking:

  • Reduction in minimum bankruptcy period from three years to one year.
  • Introduction for all company directors (not just start-ups) of a “safe harbour” from personal liability for insolvent trading if they appoint a professional restructuring adviser and pursue a turnaround plan.
  • Introduction of a new ‘predominantly similar business test’ to replace the ‘same business test’ in order to allow businesses to access past losses.
  • Banning of “ipso facto” contractual clauses which allow an agreement to be terminated solely due to insolvency.

Other significant measures outlined in the innovation statement include significant and long-term increases to government funding for scientific research, development and infrastructure, the introduction of new entrepreneurial visas and permanent residency requirements aimed at attracting and retaining international STEM and ICT talent, and policies aimed at promoting collaboration between university research and business and industry needs.

Businesses should familiarise themselves with the latest changes to legislation associated with the Turnbull government’s ‘innovation agenda’ (such as the recent Corporations Amendment (Crowd sourced Funding) Bill 2015) and consider, albeit prudently, taking a leaf out of Mr Turnbull’s book by embracing a new-found sense of risk and opportunity in regard to innovation and development. The message is: Have a go and don’t be afraid to fail.

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