David Coleman (Banks, Liberal Party) Share this | Hansard source

It is good to follow the member for Burt, who has obviously become quite emotional about some of these issues in his remarks. What I might do is work through the specific benefits in this bill for the business community, and, indeed, for the broader Australian community. The Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 operates, as you know, Deputy Speaker, within the environment of the broader National Innovation and Science Agenda of the government. The agenda is very broad, and one of the things that the agenda had to do, unfortunately, was clean up the problems that were left behind by the previous government. Nowhere was this more clear than in the area of employee share schemes. Basically, the idea with an employee share scheme is you say to somebody: 'My small business might not be able to pay you as much as perhaps a big business down the road. We can't afford to pay you as much, but I will tell you what: we will give you an incentive through the issuing of share options to you so that one day, if the business works out well and everything is successful, those shares could actually be worth some money. That's a reason for you to come and work for our small company.' When you get employee share options, Deputy Speaker, you do not get any benefit until you actually sell them or exercise them. In many cases, that benefit never comes about, because the business perhaps does not go as well as hoped and the benefit is just not there. The logical thing to do is that the person is joining the business should only pay tax when they actually make that benefit—when they actually sell those options. When they crystallise, they make a profit.

Under the previous government, when share options were issued to a new employee that created a tax event on that day. So you had this absurd situation where share options which had no practical value because they could not be sold or otherwise crystallised had to have tax paid on their perceived value on day one. That basically meant that for small businesses that were trying to compete with big businesses and were saying 'Take the lower salary, get the share options', those share options were actually, if anything, a disincentive because you had to pay an up-front tax on something that you may not, in fact, ever realise any gain on.

It was an important part of the Innovation and Science Agenda to fix that and to ensure that tax is only paid in employee share schemes when a benefit actually accrues. That is self-evidently how it should have been from the start. Unfortunately, because of the incompetence of those opposite, the Treasurer, as he then was, and others created a very difficult situation for Australian start-ups. To the credit of the opposition, they did acknowledge this when we fixed this problem back in 2015. It is a very important part of the innovation agenda.

In terms of the Innovation and Science Agenda under this government, we have seen an extraordinary boom in the Australian venture capital industry. Venture capital in Australia has typically been a much smaller part of our economy than it is in similar Western democracies, and that is a problem. We want to have an innovation nation. We want people taking risks, creating new companies and generating all the benefits that flow for the country from so doing. For various reasons, historically, we have had a small venture capital industry. Having been involved in it from as far back as 1999, I have a good understanding of the constraints on that industry.

In 2015, under the Innovation and Science Agenda, the Prime Minister said that investments in small start-up companies, small angel investments, would be free of capital gains tax and also that there would be a tax offset of 20 per cent for those investments. In addition, early stage venture capital limited partnerships—a bit of a mouthful—would receive a 10 per cent tax offset for investment in start-ups. We have seen a huge boom in Australia of venture capital investment in recent years, so much so that in the last three or four years the industry has more than tripled in size. It is still too small relative to the size of the economy; we want it to be bigger. It has gone from being, frankly, a cottage industry in this nation in 2013 to something that is now quite substantial and has a significant number of professionals focused on the task of identifying and supporting early stage Australian investment—so important as part of the Innovation and Science Agenda.

This bill is important for a number of reasons. One is the change in relation to the same-business test for accessing prior year losses. This means that when a company loses money, in subsequent years it can claim those losses as an offset against future profits. But, historically, if that company has changed or evolved in any way, the capacity to claim those prior year losses has not been there. So the ability to access those losses is lost and that creates a range of difficulties because effectively those previous losses are just trapped in the company. This new measure will relax the operation of the same-business test to allow entities to seek out new capital and new opportunities in order to return to profitability. When they conduct the same business, irrespective of whether they have entered into transactions which change the legal status of the company, if it is effectively the same business they can claim those losses. There is a qualitative test as well, which is that a similar business means a similar business. So you cannot turn around and do something completely different and claim those prior-year losses, but you can claim those prior-year losses so long as the new activity is substantially similar.

This is a really important change. It is going to enable businesses to more easily pursue change, to pursue new opportunities, without the fear of, 'If we go down that path we are going to lose access to the ability to claim those previous-year losses.' At the moment, there is a strong disincentive to do that, so businesses tend to be wrapped into a fairly tight spot. This is because if they change their activities or structure too much they are not able to claim those prior-year losses. So it is very important to proceed on this measure.

The other measure in this bill concerns the depreciation schedules. The member for Burt was making some fairly wild remarks about the horrible things that might ensue from allowing businesses to determine the time period over which they depreciate assets, but it is really very simple. Basically, at the moment, if you have an intangible asset, like intellectual property or a whole range of other things, there is a schedule. That schedule might say you should depreciate the value of that thing over a certain time. That time might be five years or 10 years and will vary from case to case.

But just say that in your business you believe that that particular asset is going to be completely used up within three years. Maybe it is a brand that you have developed. You have developed intellectual property in that but you believe that in three years you will have moved on to something else. You will be able to depreciate that over a shorter period. And that is a good thing. It basically says let's let the businesses who are the owners of these assets determine their useful life, not an arbitrary number selected by some accountants. And it is very important to understand that simply being able to change the period over which an asset is depreciated does not change the value.

If the value of the asset is $1 million—I can allay the member for Burt's fears—the total amount that businesses will be able to depreciate against the value of that asset is still $1 million. They are not going to be able to go off into a dark corner and come up with some other number. It is just that they will not have to depreciate it over a period of time that may be inconsistent with the time that the asset will operate for.

It is a very important change because, as the economy changes, the ability for schedules that are arms length and not related to a particular business to determine how long an asset will be valuable for, really, goes away. This is because business is changing, every business is different, and the notion that we can apply a one-size-fits-all solution is wrong. And that is going to distort commercial decisions. If people say, 'You know what? I've got to depreciate this asset over 10 years, even though it only has three or four years useful life,' they are going to be less likely to invest in that asset. The reason they will be less likely to invest in it is that they are only going to be able to claim the value of it over a really extended period. That is a mistake.

This change covers a range of assets, including intellectual property such as patents, designs, copyrights, licences and so on, other licences that apply to spectrum and data casting, rights to telecommunication assets and software that has been developed in-house as well. This is a really important initiative. But it all does exist in the whole area of promoting innovation and investment. I know that is something you feel very passionate about, Mr Deputy Speaker Hogan.

It is important, as always, to contrast these sorts of important measures with the short-sighted ideas of those opposite and really important, in particular, to focus on the impact of tax on small business. As you know, Mr Deputy Speaker, many small and medium sized businesses are struggling. Many of them, frankly, do not make a whole lot of money. And the more that government takes, the harder it is for them to invest back into their businesses, employ more people and so on.

There is a massive contrast on this point. Earlier this year the Senate, to its credit, supported the government's legislation to reduce the rate of company tax for companies with a turnover of between $2 million and $50 million. It is important to note that a business that turns over $2 million does not make $2 million. It probably actually makes a tiny fraction of $2 million. There are lots of small businesses in Australia that would be very happy to make five per cent on turnover. If they are turning over $2 million and making five per cent, that would be $100,000. That is not much more than the average household income. Those are the sorts of businesses we are talking about here.

Over the decade the benefit to those small- and medium-sized businesses of these tax cuts is about $25 billion. It is very important to note that those opposite do not support those legislated tax cuts for businesses with a turnover of between $2 million and $50 million. They say that these businesses are multinationals and evil corporations that need to be restrained. We say that businesses with a turnover of between $2 million and $50 million are actually small- and medium-sized businesses. About 113,000 of these businesses in Australia will benefit from the government's tax changes. The total benefit to those businesses over the decade is about $25 billion.

Let us look at the actual benefit to these businesses over the decade and at what those opposite will take away because they oppose this legislation. It is impossible of course to oppose legislation and then say, 'But we won't change anything.' They oppose it. If the changes do not go through—and they will not if those opposite are elected—the average cost to those 113,000 businesses is over $200,000. What those opposite are saying effectively is that they would like to impose an average tax increase of over $200,000 on small- and medium-sized businesses in Australia. That is pretty extraordinary when you think about it. It is very important that they are held to account on this. They voted against this measure because they think a business with $2.1 million in revenue is a huge multinational at the big end of town that needs to be kept down. But these are small- and medium-sized businesses that employ millions of Australians. The average tax increase that they will impose is over $200,000 across that range of businesses.

There are really different approaches on innovation. There are important changes in this bill, which I very much commend to the House. It is so important that we as a nation stay focused on innovation and on entrepreneurs and give them the tools they need to succeed.

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