Tapping Into The Australian Start-Up Market

Australia, being a close neighbour to Malaysia, has always been on the radar for Malaysians. Whether it is to live, study, work or have a holiday, many Malaysians have found their way to Australia at some point in their lives. As an entrepreneur, you may have considered expanding into the Australian market.

Here’s why now is the best time to do so.

Safe Haven Economy

Australia has traditionally been a safe haven economy for global investors. In the wake of great uncertainties within the global economy, Australia has been a destination of choice for asset and wealth protection. Australia’s economic resilience and potential provide a safe, low-risk environment in which to do business. The country’s economy is rated AAA by all three global rating agencies and is forecast to realise average annual real GDP growth of 2.9% between 2016 and 2020.

New Industry Required

Over the past decade, huge inflows of capital have been pushed towards the Australian property market in search of a secure asset class to preserve wealth and hold value. While this has proven successful for a number of years, it has gotten to a point where the property market is now overheated. With new stricter regulations being introduced and banks tightening lending to property investors, a need has arisen for capital to be put to more productive use elsewhere.

At the same time, Australia has experienced a slowdown in the more traditional industries – mining, manufacturing, agriculture and retail, thus creating a need for newer industries to take the lead. Tech and startup businesses have been a somewhat neglected field within the Australian economy. However in recent years, Australian startups have been gaining greater momentum and are thriving both within Australia and internationally. The big success stories of Atlassian and Kogan are indication that tech and startup businesses will be the new drivers of the Australian economy.

Increased Support from the Australian Government

The Australian Government has recently shown their support for tech and startup businesses by introducing new tax measures designed to promote investment in high-growth potential startup companies and improve businesses’ access to venture capital. On top of that, the Australian Government has pledged AU$1.1 billion (RM3.36 billion) towards building the tech and startup industry. These incentives are available from July 1, 2016 which makes now the perfect time to tap into the Australian market.

  • Some of the incentives for Startups and Entrepreneurs include the following:
  • Opportunity to raise money through crowd-sourced equity funding
  • Improved insolvency laws to encourage entrepreneurship
  • Better access to company losses
  • Greater support through incubators and accelerators
  • Greater benefit extracted from intangible assets
  • Potential for international business expansion

Startup investors stand to benefit greatly from the new rules that have been introduced. Under the new rules, startup investors are eligible for a non-refundable carry forward tax offset equal to 20% of the amount paid for their investments. On top of that, investors also get a 10 year capital gains tax exemption for qualifying investments held for at least twelve months.

A practical guide is provided by the government’s website:

“Jessica is the founder of a startup business called PaySmart Pty Ltd that is developing a software application to automate bill payments. She is looking to raise $200,000 (RM611,000) in equity finance to continue developing of the software.

Alex is an experienced early stage (angel) investor and believes that PaySmart has excellent growth potential. He invests $200,000 (RM611,000) and claims a 20% non-refundable tax offset, reducing his income tax payable by $40,000 (RM122,000).

In addition to contributing capital, Alex uses his business skills to help PaySmart grow. He sells his shares for $400,000 (RM1.2 million) four years later. As Alex has held the investment in PaySmart for the minimum three-year period and less than 10 years, the full capital gain of $200,000 (RM611,000) is exempted from capital gains tax.”

A program that is particularly relevant to startup investors is the Early Stage Venture Capital Limited Partnerships (ESVCLP). ESVCLP is a venture capital fund structured as a limited partnership and registered with Innovation Australia. Income distributions and capital gains earned as a result of investment in an ESVCLP will be exempt from tax in Australia in the hands of both domestic and foreign partners. Investments in ESVCLPs also contribute towards qualifying for a Significant Investor Visa (SIV) which is a permanent resident visa in Australia. All these make the structure very attractive to international investors.

The Australian economy is at a turning point and is ready to embrace new innovative solutions. Should Australia pop up as a blip on your radar, now is a great time to steer your ship in that direction.

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justing

Justin Ng is an accountant at Garber & Associates Pty Ltd based in Melbourne, Australia. Justin services international businesses, specialising in Innovation, R&D and Export Grants. His Australian and international business knowledge has helped many startups grow and expand internationally. Justin travels frequently to KL and can be contacted at justin@garberassociates.com.au.

 

aussie

Paul Harrington is a marketing and law specialist at Garber & Associates Pty Ltd. Paul specialises in helping startup businesses expand internationally by running successful marketing campaigns and providing advice on business structuring and trade marks. Paul can be contacted at paul@garberassociates.com.au.

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