Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Hansard source

I am very pleased to rise to speak on the Tax Laws Amendment (Small Business Measures No. 3) Bill 2015. This is an important bill, which will amend a range of tax laws as part of the government's vital jobs and small business package. I would like to emphasise three issues in my contribution to the debate this morning. Firstly, why it is so important to boost start-up businesses and small business. Secondly, the fact that the Abbott government is pursuing a suite of policy measures to address this objective. Thirdly, the specific measures which are contained in the bill before the House this morning.

Let me start by highlighting the importance of start-up businesses and the technology sector in particular. Around the world, start-up companies form a critically important part of the growth cycle. A start-up company is one that is formed from scratch, typically with the aim of commercialising some technology, such as software, medical technology, biotechnology or renewable energy technology. The technology sector is vitally important to create new businesses and to create new jobs, because the evidence suggests that this sector creates new businesses and new jobs at a higher rate than across the economy in general.

I want to cite a recent report by the advocacy group StartupAUS. That report is entitled Crossroads 2015, and the authors of that report noted predictions` that the technology sector has the potential to contribute four per cent of GDP and add 540,000 jobs to the Australian economy by 2033. But, if we want to build a strong technology sector in Australia, we need a strong start-up culture. If you go to Silicon Valley, if you go to Israel and if you go to any of the other tech sector hot spots around the world, what you see is an end-to-end system. The system includes start-up companies being founded in large numbers. There is ready access to finance at both an early stage, from so-called angel investors, and at later stages such as the venture capital stage and, later on, a public offering. Most importantly, there is a pool of talented people to be found—not just to work in such businesses but, indeed, to create and to establish such businesses.

In Australia, we have had some significant successes, and I will mention a couple of companies. Atlassian produces software which helps software teams collaborate. It was founded by two UNSW graduates—Mike Cannon-Brookes and Scott Farquhar—in around 2002. Today, it employs some 1,000 people around the world, and a recent transaction has valued the company at several billion dollars. Another leading Australian tech company is Cochlear, which is a world leader in hearing implant technology. Its global revenue is well in excess of $900 million a year, and it is commercialising and selling a product which is based upon technology developed in Australia—indeed, it is based upon research carried out at the University of Melbourne. These are amongst the most visible of Australia's tech sector companies, and they are companies which began as start-ups and have achieved significant scale.

There is plenty of activity throughout the start-up sector in Australia, and some of the earlier stage companies are not as visible, but they are certainly very impressive when you get a sense of some of the things that they are doing. For example, if you visit the tech sector co-working space Fishburners in Pyrmont in Sydney, you feel a palpable sense of energy and dynamism. You notice the diversity of the people there and the many start-up businesses they are working to get off the ground. One such business is Wattcost. The founder, David Soutar, explained to me that Wattcost's product will allow you, as a consumer, to monitor your home power usage on your mobile phone without needing complicated installation.

Another trend which we are increasingly seeing in the start-up sector in Australia is growing support coming from large corporates working with start-ups. I recently had the opportunity to visit Telstra's accelerator, muru-D, based in Paddington in Sydney, which is home to a diverse range of start-up businesses. Every few months, there is a new class of start-ups that comes through. These businesses secure a spot at muru-D for six months. During that period, they receive tailored support, including legal services and access to specialised skills within Telstra, such as, very importantly, the user experience team. Telstra provides a cash contribution and, in return, takes an equity stake. On my visit to muru-D, I had the opportunity to speak to the chief executives of a number of these start-up businesses. One, for example, serves the inbound Chinese tourist market, offering customised experiences. Another is a business called Disrupt Surfing, which allows customers to order surfboards with customised designs.

What is in it for Telstra and the corporates that are supporting start-up businesses in this way? First of all, it allows them to be seen to be supporting the Australian technology community. But it also gives these companies access to start-up talent and cutting edge ideas. Of course, ultimately there can also be a commercial advantage, should it be the case that some of these businesses become very large and become substantial users of communication services. We are seeing similar trends in the start-up sector in other industries—for example, a range of finance sector businesses. The new Sydney fintech hub Stone & Chalk is an illustration of this trend. It has received seed funding from many of Australia's largest financial institutions, including: ANZ, HSBC, Macquarie Group, Suncorp and Westpac.

Clearly, if we can increase and elevate our level of start-up activity in Australia, the economic benefits over a number of years will be significant. The public policy paradox is that policymakers can identify this goal, but, ultimately, it is only individual entrepreneurs prepared to take significant risks who can generate the flow of start-ups that we need. The role for government, I would suggest, is to help create the conditions in which entrepreneurs are prepared to take these risks.

That brings me then, secondly, to the suite of measures which the Abbott government is pursuing to stimulate start-up activity in the Australian economy—to stimulate start-up activity, to stimulate entrepreneurship, to stimulate innovation. For example, there are our commitments to streamline business registration processes to make it quicker and simpler to set up a new business.

Our work in relation to employee share ownership plans is extremely important. Employee share schemes are vital for start-up businesses. The reality is that start-up businesses generally are not in a position to offer generous cash remuneration to talented employees. What they can offer, though, is an opportunity to share in the upside should the business do very well, and that is typically done through inviting employees to participate in an options plan. That is standard practice in the technology sector around the world—in the US, in Israel, in Europe and in many other markets where start-ups have a significant role and where their technology sector is vigorous and active.

Unfortunately, the previous Labor government thought differently. It was hostile to employee share schemes, and the tax settings introduced by the then Treasurer, then and now the member for Lilley, were extremely unconducive to offering employees the opportunity to participate in options schemes. In fact, Australia had a tax treatment under Labor which was out of step with most of the rest of the world because you were subject to being taxed on the value of the options in the year that they were issued to you.

We have taken a very different approach. We have changed the law. With effect from 1 July this year, the law in Australia is now aligned with that in most other markets. It consequently makes it much easier for start-up companies to be able to offer participation in options plans to employees, and they are once again competitive in attracting talent, bearing in mind that in doing so they are competing with other employers who are seeking to attract these skilled IT employees.

The Abbott government have also announced that we will remove obstacles to crowdsourced equity funding. Current legislation in Australia means that equity crowdfunding platforms face some significant regulatory barriers. I recently had the opportunity to meet with the founders of Equitise, Chris Gilbert and Jonny Wilkinson, and they explained to me some of the challenges that a crowdsourced equity-funding business model faces in Australia. Equitise is an Australian business, but it was officially launched in New Zealand late last year because of the fact that the New Zealand regulatory settings were changed some time ago. In Australia at the moment there is still some work to do. The Abbott government have made a commitment that we are going to change the laws to facilitate crowdsourced equity funding. We have committed to bringing in legislation in the spring sittings this year. That matter is, happily, in the hands of the energetic and irrepressible Minister for Small Business. He is pursuing it vigorously, and that is good news.

We have also announced changes to the significant investor visa. People who are issued such a visa will now be required to invest at least $500,000 in eligible Australian venture capital or private equity funds, which in turn invest in start-up and small private companies. This again is another important policy measure to stimulate innovation, to stimulate entrepreneurship, to stimulate the start-up sector.

Let me turn thirdly, then, to the specific measures in this bill, which form another part of the overall suite of measures I have talked about to stimulate small business and to stimulate start-ups. This is the third of four bills that the Abbott government has introduced to deliver the Jobs and Small Business package. The measures in this bill will provide improved cash flow for start-up businesses and small businesses and will reduce red tape.

A key measure in this bill is that individual taxpayers with business income from an unincorporated small business will receive a five per cent discount on the tax payable on their taxable income from that source, up to a cap of $1,000. This is important because some two-thirds of Australian small businesses are not incorporated, so this is a measure which gives unincorporated small businesses equitable treatment as compared to incorporated small businesses. Of course, we have announced a reduction in the company tax rate for small businesses in corporate form.

Another important measure in the bill before the House this morning is the immediate deductibility of professional expenses to small businesses. This is very important. Often, when a small business is established, the legal and professional costs are quite significant, and that is certainly the case for start-up businesses in the technology sector, yet today the tax treatment is such that you cannot write off the full cost of those professional expenses in the first year; you have to spread it over five years. We are changing that so you can have immediate tax deductibility for those expenses, and that of course will provide an immediate cash flow benefit which is of great value to businesses at that very early stage of life, when cash is often in short supply.

The third important measure in the bill before the House this morning is the change to the fringe benefits tax treatment of work related devices—iPhones and other smartphones, tablets, personal computers and so on. Previously, the way that the fringe benefits tax legislation worked essentially made it difficult to get the desired tax treatment in respect of an employee with multiple devices, even though, as we all know, typically in businesses of all kinds, and certainly in tech based businesses, an employee will very commonly have a laptop, a tablet, a smartphone and in many cases even more devices than that. We have changed the fringe benefits tax treatment so as to not distort business decisions. That is a measure in the bill before the House. It applies to small businesses with an aggregate turnover of less than $2 million per annum. This is going to deliver red-tape benefits but also prevent fringe benefits tax treatment affecting important business decisions as to the choice of tools which are provided to employees to do their work.

The role of small business and, within that, the role of start-up businesses are absolutely critical. The Abbott government is pursuing a wide range of policy measures to stimulate and to facilitate such businesses, and the measures contained in the bill before the House this morning form part of that suite of policy measures. They are sensible, they are stimulatory, they will encourage business, and I commend them to the House.

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