Start-ups call for changes to key rules

The who’s who of Australia’s start-up industry have banded together to lobby the Abbott government to hasten its review into employee share option schemes, make crowd-sourced equity funding legal and create new visas for entrepreneurs.

The not-for-profit group StartupAus says start-ups could contribute about $110 billion in economic benefit but Canberra must stop dragging its feet on key initiatives to create a viable platform for them to prosper.

StartupAus wants to ensure Canberra develops a fairer tax regime and addresses equity funding roadblocks while having an open-door policy for international entrepreneurs so Australia doesn’t lag behind other nations.

The recommendations are contained in a landmark report, Crossroads, aimed at eliciting urgent action from government.

The report says such action would address the jobs of the future amid a dwindling resources sector and the wipe-out of the manufacturing industry.

StartupAus comprises 50 leading personalities in the industry such as Google Australia’s Alan Noble, Atlassian co-founder Mike Cannon-Brookes, Southern Cross Venture Partners general partner Bill Bartee, Fishburners founding director Peter Bradd, River City Labs founder Steve Baxter and ANZ Innovyz Start program director Jana Matthews.

It says the tax treatment of employee stock option plans is having a “detrimental impact on Australia’s ability to attract and retain the best workers”. Unlike their peers in the US and Europe, employees of local start-up companies are at a severe disadvantage, as share options are taxed at the time of issue instead of when the shares are exercised.

Mr Cannon-Brookes from Atlassian, fresh from a US$3.3 billion valuation, called the tax scheme a “ludicrous burden” on start-ups. “The government has to realise that the start-up industry is the future of the country,” he told The Australian.

Although the government undertook direct consultations with stakeholders in its review of employee share option schemes between January and February, nothing has been heard since.

StartupAus wants the government to ensure that the review is completed as rapidly as possible and that it fully addresses the problems that make Australia’s tax laws undesirable to start-ups.

The report, obtained by The Australian, also calls on the government to make crowd-sourced equity funding legal.

CSEF should not be confused with pledge-based funding sites such as Kickstarter and Pozible, where people provide advance payments for products or ideas in development, Dr Matthews said.

In 2012, the Australian Securities & Investments Commission said that crowdfunding was regulated under local laws and the maximum penalty for carrying on a financial services business without a proper licence was $22,000, two years’ imprisonment or both.

A discussion paper on CSEF was released by the previous government in September 2013 and Labor pledged to undertake a review to determine a best practice framework by April 2014. This is in limbo under the Coalition.

Industry Minister Ian Macfarlane’s spokeswoman offered no comment on the matter.

StartupAus called on the government to create a special purpose visa for entrepreneurs looking to set up shop in Australia. Britain and New Zealand have an entrepreneur visa category to lure the best business talent. A similar move would help accelerate the growth of start-ups in Australia, said Mr Noble, Google’s engineering head.

He said Communications Minister Malcolm Turnbull “gets it” in terms of challenges start-ups are facing but others in cabinet needed convincing.

“We plan to meet as many ministers as possible ... people like (Mr) Macfarlane,” Mr Noble said.

He said the government doesn’t have to “reinvent anything but be smart about how we do things”, which doesn’t necessarily mean spending a lot of money.

“There are many things we can learn from other countries and adapt that to our situation,” Mr Noble said.

The report also calls for capital gains exemption and/or tax deduction for angel investments, and the establishment of a seed co-investment fund, among other recommendations.