VCs call for UK-style tax breaks to spur start-up market

The Federal Government has been urged to do more to spur start-up investment, following the unveiling of a UK government initiative that gives a huge tax break to venture capitalists.

The new Seed Enterprise Investment Scheme will allow investors to plough £100,000 into budding businesses from next April.

The investors will then receive an upfront income tax relief of 50% – regardless of the rate they normally pay.

On top of this tax break, any gains from other investments in the 2012 tax year will be exempt from capital gains tax if put back into start-ups in the same year.

UK chancellor George Osborne says: “We are extending this scheme specifically to help new start-up businesses get the seed investment they need.”

“Even at the best of times they can struggle to get the finance they need – and in the current credit conditions that struggle too often ends in failure.”

While Australia’s economy is undoubtedly performing better than the UK, where unemployment recently hit 9%, a lack of credit is a constant bugbear for local start-ups.

Philip Hall, of Hall Capital, says that a similar incentive for Australian VCs would prove a significant boon for start-ups.

“There are some tax benefits attached to funds, but it is all ad hoc and uncoordinated,” he says.

“There’s nothing as bold as this in Australia. It would be great if it happened here as it would be hugely positive for early-stage companies.”

“VCs need assistance as all the funds have been spent and there is no government assistance at the seed stage.”

“Every country needs new businesses, but we don’t have a long-term strategy for innovation. Also, there are a whole range of businesses – in IT, online retail, music, games and so on – that struggle to raise money at the VC stage.”

Katherine Woodthorpe, CEO of VC industry body AVCAL, says: "AVCAL finds the UK scheme very interesting and would welcome our Government thinking along those creative lines."

"It demonstrates that the UK Government is more concerned about, and recognises the value of, the venture capital industry as an absolutely vital contributor to the growth of the economy."

Peter Strong, executive director of COSBOA, also backs the UK model, saying: “The extreme economic rationalists have controlled things for a few decades now, but hopefully that will change.”

“Investors need incentives and banks need to be named and shamed if they don’t pass on interest rate cuts.”

The Federal Government hadn’t responded to a request for comment at the time of publication.

However, the office of small business minister Nick Sherry pointed out that this year’s budget included an instant write off on the first $6,500 spent by businesses on any asset, from July next year.