Natasha Griggs (Solomon, Country Liberal Party) Share this | Hansard source

It is a pleasure to follow my colleague the member for Hughes. This legislation, the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016, is about jobs for the future. It is about the 21st-century economy. It is about ensuring Australia is competitive on a global scale, and that we have a broad base from which to build our national wealth. The Australian economy is fundamentally strong and unemployment is relatively low. The surplus left by the previous coalition government shielded us from the worst effects of the global financial crisis. There is a sense, overall, that the nation is on the right track. But governments should not rest on their laurels—and this government will not.

The Turnbull government wants to ensure that the foundation stones for change are laid now and that the frameworks for business and industry to prosper into the future are put into place now. The successful transition of the Australian economy from the resources-led boom will be fuelled by innovation, investment in a more diverse range of industries and support for businesses to create more jobs. We have announced important building blocks in our economic plan to support this transition, including the innovation and science agenda, which will develop the skills required for the jobs of the future, bring more great Australian ideas to the market and support start-ups.

I see a very different Australia in the next few decades—one still reliant on our natural resources but also more attuned to the needs of the region and beyond. In the same way that the United States' economy has benefited from the genius that is Apple, Microsoft and so on, so too can Australia lead the world in innovation and technology. In the United States, one of the fascinating stories is the rise of Tesla Motors, in part due to its charismatic founder and CEO Elon Musk but also due to the drive for innovation that has been central to its development over the past decade and a half. Tesla first gained the public's interest following the release of the Tesla Roadster, the world's first fully electric sports car around 2008. It was the first electric vehicle to have a range in excess of 300 kilometres between charges, thanks to the innovative lithium battery cells. Between 2008 and 2012, it sold about two and half thousand models. But concurrently with that, in 2009, Tesla released the Model S all-electric sedan. By the end of last year, it had sold 100,000 models worldwide.

In March, the company unveiled the Tesla Model 3, the first vehicle aimed at the mass market. Within weeks, global reservations totalled around 350,000 units, representing a potential sales figure exceeding US$14 billion. For America, the success of Tesla Motors is not just defined by the advance orders. Tesla is one of the new economy industries that has been able to create jobs by the thousands. In December 2012, Tesla employed almost 3,000 staff. Three years later, that figure had increased to more than 13,000—a rise of more than 10,000 jobs in just over three years. Through the drive and determination of the Tesla team and its charismatic driving force of Elon Musk, Tesla has been able to create a low-emissions vehicle that is expected to one day be affordable to the average wage earner. The Model 3 is estimated to cost around $35,000 in US terms, which might still put it out of the reach of some Australian families just at the moment. But, through innovation and development, the organisation has been able to substantially reduce the cost of purchasing a low-emissions vehicle in the United States and elsewhere.

It has not all been smooth sailing with Tesla. There have been some legal issues around copyright and patents that have dragged the company through the courts. Then there was a particularly famous episode of Jeremy Clarkson's Top Gear in which the crew were filmed pushing a Tesla into the garage, presumably after its batteries had run out. But, overall, the company has defied the odds to deliver long-range electric vehicles, which have been promised for years but have, until recently, remained a pipeline dream.

This is what I referred to earlier when I mentioned Australia being more attuned to the needs of the region and beyond. With the many great minds we have at our universities and research institutes across the country, I have no doubt that one of the areas of innovation where Australian will lead the way will be in the development of sustainable technologies and green energies that will meet the demand in the Asia-Pacific region and in the Northern Hemisphere, as well. But, of course, the scope is endless. This legislation that we are discussing today will help facilitate innovation and smart thinking for years and decades to come in this country. In the process, it will mean new jobs, more export dollars and more investment.

So, on to the legislation. The two key headline items from this package of amendments were very appropriately, and I think accurately, summarised in the March edition of Tax Month. Their appraisal focused on the 20 per cent tax offset on investments of up to $200,000 in innovation and the 10-year capital gains tax exemption. The Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 was introduced into the House of Representatives by the Treasurer, Scott Morrison, in March. The bill proposed the following: early stage innovation company amendments to the Income Tax Assessment Act 1997, which are intended to encourage new investment in Australian early stage innovation companies with high growth potential by providing investors, who invest in such companies, with tax incentives.

These amendments form part of the tax incentive for early stage investors. Tax incentives to encourage innovation via these entities include a 20 per cent carry forward non-refundable offset on investment capped at $200,000 per year. The tax offset will be available upon investment, not when the funds are used by the innovation company. There will also be a 10-year exemption on capital gains tax for investments held in the form of shares in the innovation company for at least 12 months, provided that the shares held do not constitute more than 30 per cent interest in the innovation company and that any sale of the shares will be taxed on a deemed capital accounts basis.

To qualify for these incentives, the investments must be in an early stage investment company that is broadly unlisted, is less than three years old, has $220,000 or less assessable income in the previous year and has $1 million or less in total expenses in the previous year. There are no investment limits on sophisticated investors under section 708 of the Corporations Act 2001, except for the $220,000 investment limit for the tax offset. Other investors will have a $50,000 limit. These amendments will apply in relation to shares issued on or after 1 July 2016 or on royal assent.

The Early Stage Venture Capital Limited Partnership, otherwise known as the ESVCLP, and the Venture Capital Limited Partnership, the VCLP, regimes within the Venture Capital Act 2002 and ITAA 1997 will be amended to improve access to venture capital investment and make the regimes more attractive to investors. The amendments provide additional tax incentives for the limited partners in new ESVCLPs, relax restrictions on the ESVCLP investments and fund size, and clarify the legal framework for venture capital investment in Australia. Under the changes there would be: a non-refundable tax offset of 10 per cent of the value of new capital invested into Early Stage Venture Capital Limited Partnerships during the income year, an increase in the maximum fund size of Early Stage Venture Capital Limited Partnerships from $100 million to $200 million, improved access to funding from managed investment trusts and, also, broadening and simplifying rules for both Venture Capital Limited Partnerships and Early Stage Venture Capital Limited Partnerships.

These amendments will broadly apply on and after 1 July 2016; however, the ESVCLP tax offsets will be available for any qualifying contributions made to ESVCLPs that became unconditionally registered on or after 7 December 2015, which was the date that the measure was announced in the Prime Minister's innovation statement. By way of definition, the explanatory memorandum answers the question, 'What is an early stage investment company—or ESIC?' Generally, an Australian incorporated company will qualify as an ESIC if it is at an early stage of its development and it is developing new or significantly improved innovations with the purpose of commercialisation to generate an economic return. The specific objective threshold tests apply to determine if the company is at an early stage of its development, whereas a combination of tests may apply to determine if the company is developing a type of innovation. These different tests recognise that while objective tests are easier to apply in Australia's self-assessment income tax system, companies may be innovating in a variety of different ways and so may need to apply a combination of different tests depending on their circumstances.

A company must pass four tests to satisfy the early stage limb of the qualifying ESIC test. Test 1 is where the company has been recently incorporated or registered in the Australian Business Register, then the company must have been incorporated in Australia within the last three years. If it has not been incorporated within the last three years, then it must have been registered in the Australian Business Register within the last three income years. If it has not been registered in the ABR within the last three income years, then it must have been incorporated in Australia within the last six income years and any wholly-owned subsidiaries must have incurred expenses of no more than $1 million in total across all of the last three income years.

The ATO's company tax return requires companies to report total expenses as part of the total profit-and-loss calculation. A company that has submitted a company tax return in the previous income year must rely on the amount reported in item 6 for the purposes of this test. Alternatively, if the company was not required to submit a company tax return, it may use the amount corresponding to this item. A company that does not meet any of these requirements will not qualify as an ESIC.

I commend the Treasurer on his work in putting this piece of legislation together. As I said at the beginning of my comments, this legislation is all about jobs for the future. It is about the 21st century economy. It is about ensuring Australia is competitive on a global scale. I am really pleased to have been able to speak on it. I commend the bill to the House.

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