Australian higher education providers often have structures in place to seek to work with external partners (including industry) to commercialise intellectual property and research output, so that additional funds can be generated for their educational purposes.
There have been recent tax changes which may encourage greater investment into the innovation sector. This may be of benefit to the higher education sector's efforts to commercialise its intellectual property and research output. The tax changes seek to encourage investment in particular types of entities that are directly involved in innovation or are investors in innovation.
The changes include the following:
- Effective from 1 July 2016, to encourage investment in shares in early stage innovation companies (a defined type of entity) by non-affiliated investors the following tax benefits may be available:
- A 20% tax offset on the cost of the shares may be available, capped at $200,000 per annum. This can be carried forward, but is non-refundable. A tax offset means a reduction of any existing Australian tax liability.
- A ten year exemption from capital gains tax arises if the shares are held for a year or more.
- If the shares are held for ten years or more, the investor will received a deemed market value on the ten year anniversary. This will form a part of the investor's cost base in the shares for capital gains tax purposes, and can potentially reduce capital gains tax when the shares are disposed of at a later date.
- A number of changes affect early stage venture capital limited partnerships and venture capital limited partnerships. These partnerships are investment vehicles which must meet certain criteria and be registered at Innovation Australia, and which invest in eligible venture capital investments. Eligible investments have a number of criteria, but include companies or unit trusts which are seeking to commercialise innovative research or intellectual property. The partnerships already attract particular tax concessions, including an exemption for partners from capital gains tax on their share of the gain made by the partnership from its underlying investments.
- For partnerships registered at Innovation Australia after 7 December 2015, the new changes are very technical, and include changes to:
- provide a 10% tax non-refundable offset on contributions made by a partner to an early stage venture capital limited partnership during an income year. A tax offset means a reduction of any existing Australian tax liability;
- increase the current maximum fund size for an early stage venture capital limited partnership from $100m to $200m, and remove obligations for an early stage venture capital limited partnership to divest itself of investments with book values in excess of $250m (although the capital gains tax exemption is proposed to be capped on such investments);
- clarify the rules in relation to the capital gains tax exemption to ensure that exempt gains are not recaptured when they flow through trusts, and clarify what the rules mean for trusts that are investors in partnerships;
- expand the category of foreign investors eligible to access tax benefits for the partnership rules to include widely held foreign venture capital fund of funds; and
- expand the potential eligible venture capital investments.
Registered early stage venture capital limited partnerships and venture capital limited partnerships which could be potential investors or partners in commercialisation initiatives by higher education providers can be identified on an online register which also identifies their preferred investments. The current list on the register is available online as per the links above.
For higher education entities seeking investors or partners in commercialisation ventures, the tax changes may open up further opportunities for investors and partners in ventures seeking to commercialise intellectual property or research output.