IIA urges more government support for Australian startups

Tax rule on share options has held back startups, says IIA CEO Peter Lee.

Credit: Heisenberg Media

Credit: Heisenberg Media

The government should forget mining and invest in startups, the Internet Industry Association (IIA) has urged.

The IIA said the government is not providing adequate incentives for startups, spending money instead on the mining sector and “non-competitive manufacturing industries.”

A critical first step is to roll back a a tax rule preventing startups from providing employee share options, the IIA said. Three-year-old changes to tax law require that the employee is taxed on the value of the share option when the option is issued, before any payments are made.

IIA CEO Peter Lee said the tax rule on share options has made it difficult for small businesses to survive.

“It has effectively removed an important incentive that cash-strapped technology start-ups were previously able to offer employees to make them viable in a highly competitive labor market exacerbated by Australia’s IT skills shortage, which is also not helped by an increase in red tape for 457 visas.”

In addition, the IIA said the government should use tax incentives to promote investment in emerging IT sectors like cloud computing. It should also create government supported co-investment programs, alternative equity funding schemes and provide additional funding for startups and incubators.

Lee praised a recent commitment by the Coalition to reverse the tax rule for startups. However, he said a paper released in June by the Labor government to review the tax rule is too little too late.

“Where is Labor’s response to its 2009 [Employee Share Schemes] policy change, which has obviously inhibited, not helped, start-ups in Australia? We would like to hear and have confidence that the Labor party understands the importance of immediate reform in this area,” Lee said.

“Support purely for the NBN is no longer enough. While the Government’s update to its National Digital Economy Strategy (NDES) identifies that action is needed to provide a supportive environment for digital industries, we need to see some definitive commitments and results.”

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