25 October, 2016
Australia, 25 October 2016: An alliance of startup organisations are calling for startup-friendly enhancements to the R&D Tax Incentive scheme. The submission, prepared by StartupAUS and supported by FinTech Australia, StartupWA, StartupTas, TechSydney, Startup Adelaide and Startup Victoria, proposes a series of key recommendations to the Federal Government review that would see the scheme enhance its investment in innovative, high-growth businesses.
StartupAUS CEO Alex McCauley said the R&D Tax Incentive is most effective when directed to startups. National research conducted by StartupAUS in support of their submission found an overwhelming 98.7% of startups we surveyed indicated that they would hire additional staff with increased income from the R&D Tax Incentive, 82.4% of which would be specifically in an R&D capacity.
“When the R&D Tax Incentive is spent on startups, three critical goals are achieved. Startups are supported when they are at their most vulnerable, R&D output gets a big direct boost, and our fastest growing tech companies are encouraged to stay and create jobs in Australia. In short – you get a lot of bang for your buck when the R&D Tax Incentive goes to startups,” McCauley said.
CEO of Fintech Australia Danielle Szetho said, “The R&D Tax Incentive has already done so much to drive our fintech industry forward. The Federal Government now has a great opportunity to focus it where it’s desperately needed – on incentivising better collaboration between startups, corporates and researchers to drive much-needed commercialisation outcomes.”
CEO of TechSydney, Dean McEvoy said, “At a time where other global cities are investing more heavily in their startups and high growth technology sectors it would be a disaster if the government reduced its most effective supporting initiative.”
Managing Director of Startup Adelaide Jenny Vandyke said, “I believe that strengthening the R&D Tax Offset for our innovative, high growth startups is one of the best ways to stimulate jobs growth and strengthen our economy, particularly in the pressure cooker economic environment we’re facing here in South Australia.”
Director of StartupWA Justin Strharsky said, “The R&D Tax Incentive is one of the best levers we have to stimulate investment in innovation and encourage growing ventures to stay in Australia. We should increase its impact on early stage startups, especially by making payments quarterly, to drive job creation and make this a great place from which to build businesses.”
CEO of Startup Victoria Georgia Beattie, said, “The $2 million cash back cap will reduce available cash for startups in our economy. Increasing the cash available here will culturally change for the better the way Australians approach innovation. A focused increase towards small companies will be bait to attract smart innovators to put their minds towards Australia’s fundamental economic challenges.”
Mr McCauley also acknowledged how effective the scheme was in supporting early stage businesses.
“Access to capital is the single biggest challenge facing early stage businesses, and the R&D Tax Incentive is one of the biggest levers available to government to provide support. Our research shows that 89 % of startups say R&D Tax Incentive is either critical (68.9 %) or very important (20.3 %) to their business, while 87.8% of startups say that receiving the R&D Tax Incentive quarterly rather than annually would make a ‘huge’ (77%) or very large (10.8%) difference.”
In August, the Department of Industry, Innovation and Science released figures showing net job creation comes from early-stage and startup businesses – with young companies creating nearly all of the 1.6 million net new jobs in Australia from 2003 to 2014. These findings echoed figures released in the US, where economists have found that startups compose less than 10% of all firms, yet they contribute 20% of job creation at companies with more than one employee.
StartupAUS has recommended a number of relatively low-cost amendments that could make a significant difference to the impact of the scheme on startups. These include:
Analysis conducted by StartupAUS and KPMG suggested even very substantial increases to the amount claimable by early stage tech startups (doubling it, from 45% to 90%) would only cost $90 million in a scheme that in total costs more than $3 billion each year. StartupAUS believes this part of the scheme delivers the most value, and suggests giving it a significant boost.
Cashflow is the single biggest issue facing most startups. Some 87.8% of startups surveyed in support of this submission said that receiving the R&D Tax Incentive quarterly rather than annually would make a ‘huge’ (77%) or very large (10.8%) difference to the cashflow of the business. Many startups are currently borrowing against future R&D Tax Incentive payments, which can involve hefty interest rates and substantially eat into the effectiveness of the scheme. Paying the tax incentive quarterly to early stage startups would deliver a powerful boost to their viability and growth prospects.
The application process for the R&D Tax Incentive is cumbersome and lengthy. It costs founders time that could be used on their business, and often advisory fees to help put the application together. Simplifying the process would streamline applications and deliver more of the resources of the scheme to the right people (businesses, rather than middle-men).
The Expert Panel Report recently released by the Government proposed an additional incentive for collaboration with universities and research bodies when conducting R&D. Startups currently find it very difficult to access IP developed at universities, therefore StatupAUS welcomes any step to make this process more rewarding. Further to this, extending the collaboration entities to include larger enterprises could be a valuable factor in helping startups form strategic partnerships with corporates.
The Expert Panel Report suggested capping refunds to smaller companies under the scheme to $2 million. StartupAUS a cap of this amount cuts the refund available to many of many of Australia’s most promising scale-ups. If a cap is required, StartupAUS recommends a much higher number (around the $5 million mark) would be more appropriate.
Mr McCauley continued: “The vast majority of Australian startups claim the R&D Tax Incentive. Startups, almost by definition, are working on innovative new products and services that require a bit of time and money to develop and get right, and many of those costs are eligible for refunds under the scheme. The capital provided under the incentive for early-stage and growing businesses is a lifeline to many startups that can literally make the difference between growth and failure for a promising venture,” he said.
The Federal Government’s public submission process is open until the 28th of October. If you’d like to make a submission, head to this website and follow the instructions. Feel free to take as much as you need from our submission, or tailor to your own views as appropriate. Alternately, you can fill out the government’s feedback survey here.
Data from StartupAUS’ survey conducted in October 2016 on a nationally representative sample of 74 startups:
StartupAUS is a not-for-profit entity with a mission to transform Australia through technology entrepreneurship. StartupAUS believes a strong home-grown tech sector is vital to future Australian jobs and wealth. But getting there will require a national imperative to create the right environment, with a supportive culture and more entrepreneurs with the right skills.