The task force charged with putting together the government’s tax white paper will consider a proposal from tech industry stalwart and Coalition backbencher David Coleman to exempt startups from paying capital gains tax (CGT).
In an op-ed for the AFR over the weekend, Coleman said the Coalition should scrap the tax in order to “incentivise investment in start-ups over more traditional stocks and property”.
He said that while there are capital gains tax exemptions for smaller business owners and some venture capitalists, every other startup investor gets hit with a CGT on exit.
There is no general CGT incentive to invest in a start-up, over a traditional listed company or investment property. If it doesn’t work investors will lose their money, if it does work the government will come along and ask for some CGT when you sell your stake.
To encourage new business formation, I believe we should look at a CGT exemption for investments in early-stage companies.
Making early-stage investment free of CGT would be a strong selling feature for new businesses looking to raise capital. Coupled with reforms to allow crowdfunding, it could create a new army of venture capitalists.
Coleman suggests removing the need to pay capital gains tax on all equity investments in private companies less than two years old, with less than $1 million revenue in the last 12 months, regardless of the type of investor or length of investment.
The parliamentary budget office has already done the sums, estimating the exemption would cost the goverment $50 million over the next four years and rise to $30 million annually by 2018-19.
“It is not unaffordable,” Coleman said.
“We don’t need more tax. We need a more-efficient public sector, and tax policies that help to stimulate private investment and productivity growth.”