Proposed super laws a ‘kick in the guts’ for tech start-ups

Teal independent MP Allegra Spender is leading a chorus of technology start-ups and investors criticising the federal government’s proposed superannuation legislation, which they say would harm the sector and reduce funding for early-stage innovative companies.

The legislation, which was given the green light by a Senate committee last week, would lift the tax rate on earnings for super balances above $3 million from 15 per cent to 30 per cent, and also apply to unrealised gains, changes that Spender said would reduce Australian start-ups’ access to investment.

Teal MP Allegra Spender says proposed changes would stifle innovation.Credit: Alex Ellinghausen

“This is going to hurt them at a time where Australia really still is behind the curve in terms of our investment in early-stage companies; we’re significantly below the US and the UK on a per capita basis,” Spender told this masthead.

“This is a real concern... I think taxing unrealised gains is bad policy, and it also sets bad precedents, but the biggest issue I’ve got is the impact it will have on start-ups. We need to be passionately focused on keeping our best and brightest in Australia and support them building these companies.”

The changes are thought to apply to about 80,000 high-net-worth superannuation account holders, but Spender said many of those were investors in the local technology sector.

According to Spender, given start-up valuations can shift significantly up and down from year-to-year, and the tax will be charged on the estimated value of assets, investors may end up paying tax on money they would never see.

When debate on the superannuation bill resumes, she intends to move an amendment requiring the government to conduct a review of the impact on start-ups before the new regime comes into effect from July 1 next year.

Assistant Treasurer Stephen Jones defended the proposed changes.

“The government has proposed a modest change that will affect 0.5 per cent of superannuation members. The taxation of superannuation will still be concessional, but we’re just making sure the support is fair and sustainable,” he said.

Assistant Treasurer Stephen Jones has defended the changes.Credit: SMH

Last week, a Senate economics legislation committee strongly supported the bill, finding that current super tax concessions “disproportionately benefit Australians with very large balances at a significant cost to the federal budget”.

“The committee also highlights evidence that the taxation of unrealised capital gains is not unknown to the Australian tax system,” the committee said. It also pointed to evidence that all superannuation trustees have an obligation to keep sufficient liquidity within their account to meet their Australian Prudential Regulation Authority obligations.

Peter Cameron, venture partner at impact investment fund Giant Leap, said he often invested in promising technology businesses and founders through his self-managed super fund (SMSF).

“I’m disturbed to read about potential changes to the taxing of unrealised profits in these funds,” he said.

“Quite frankly, I can’t understand how I can be taxed on a totally illiquid investment that may or may not generate some form of profit for us when it finally exits, which could be some five or 10 years away. The valuation of such investment will, at best, be difficult, if not impossible, to be accurate with.

“This is a policy that, if implemented, would see me stop dead in investing in innovative companies through my SMSF. I thought that we were trying to encourage Australian businesses to innovate and compete in a global community. To do so, angel investors are critical for these businesses to get established, and in my opinion, this policy will kill off a substantial amount of these investments.

Carolyn Breeze: Changes would be a “kick in the guts”.

“Please reconsider for the sake of this country’s start-up businesses,” Cameron said.

Technology investment fund Scalare Partners’ chief executive, Carolyn Breeze, said the proposal was a “kick in the guts.”

“It’s time for Australia to get serious about improving our innovation exports, but policies like this move us 10 steps back,” she said.

“The government must evaluate the potential impact of these reforms, to avoid stunting innovation and growth in our economy, especially after launching its Future Made in Australia initiative.”

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