Policy

Policy and Research Update | March 2022

Welcome to the Australian Investment Council’s latest Policy and Research update for 2022.

With the federal election likely to be called for May 2022, the government has been moving fast to progress certain legislative reforms and introduce key legislative priorities into the Parliament, ahead of the final parliamentary sittings in March to deal with the Federal Budget. With nearly $16 billion in spending flagged over the next four years, but not allocated in the Mid-year Economic and Fiscal Outlook, the Council anticipates significant spending will be announced in the federal budget on 29 March.

The Council’s positions on a number of budget-related policies are outlined in a comprehensive submission to Treasury for the 2022-23 Federal Budget.

Continuing to directly engage with the Government and Opposition is an important focus of the Council’s work on behalf of the private capital industry. When the Parliament is prorogued and moves formally into election mode, the Council will release the industry’s Policy Blueprint which will inform our work with government stakeholders on a day-to-day basis. We will look to share that with members as soon as it is finalised.

The Council has actively engaged in consultations in the lead up to the Federal Budget and the next federal election. These have included continued engagement on the Your Future Your Super Reforms, ongoing consultation on changes to the Foreign Investment Framework and employee share schemes alongside University Research Commercialisation, changes to the Foreign Financial Services Providers provisions, investment governance for superannuation and proposed determinations for the R&D Tax Incentive.

A summary of our key policy and research activities is set-out below and a more detailed account of our recent activity is set out below.

Venture Capital Tax Concessions Review

The Council has continued to engage with both Treasury and Industry Innovation and Science Australia (IISA) who have joint oversight of the consultation and review process for the Venture Capital Tax Concessions Review. Our detailed submission produced in consultation with GP and adviser members is available here .

Evaluation of the 2021 foreign investment reforms

The Council has continued to maintain deep contact with the FIRB team in the Treasury regarding changes to the Foreign Investment Framework and is continuing to consult with Treasury following the Government’s response to the Treasury’s evaluation of the 2021 reforms.

Exposure Draft Regulations are scheduled to commence in early 2022, and a Discussion Paper has been released seeking views on further reforms in March 2022.

Research and industry knowledge building

Research activities supporting the Council’s advocacy efforts include the pending release of the third Future Jobs Barometer, a study on the job vacancies and skills in VC-backed businesses which is updated every six months. 

November

Your Future, Your Super

The Council has been actively engaged in the various phases of consultation of the Your Future, Your Super reforms because of the implications that these changes will have on the way superannuation funds develop and implement their investment strategies will have a significant bearing on the flow of private capital into Australian businesses over the long-term.

The Council welcomed the new regulations promulgated on 11 November 2021 and reflect the significant attention and discussions that the Council has had with Government on this important issue for the industry.

In December 2021 the Board had the opportunity to hear from and have an open discussion with Minister for Superannuation, the Hon. Senator Jane Hume. The meeting allowed the Minister to hear from Board members on how the RG97 framework provides challenges for superannuation funds. The Minister articulated the Government’s perspective on the policies underpinning its superannuation reforms.

January

Pre-Budget Submission 2022-23

As one of the flagship submissions for the Australian Investment Council, a comprehensive Pre-Budget submission was lodged with the Treasury for the 2022-23 federal budget. The submission focused on key policy areas where Government action can assist the industry to continue to support investment into high-growth potential Australian businesses. These areas, explored in detail in the submission included:

1) Addressing skills shortages;

2) Supporting innovation; and

3) Maintaining a steady flow of investment capital.

Relief for Foreign Financial Service Providers

The Council was supportive of the exposure draft legislation in providing a framework for foreign financial services providers to promote diversified investment opportunities for Australian Investors and to continue to encourage of flow of inbound capital. The Council made a submission to the Treasury on Exposure Draft Legislation: Relief for Foreign Financial Services Providers.

February

Employee Share Schemes

Employee Share Schemes (ESS) are an important component of staff incentivisation in companies within the innovation ecosystem who are often faced with limited resources during their early stages of growth, despite the potential to grow into large and sustainable businesses. While reforms in this area over recent years have significantly improved the ESS regime, the Council believes there are still opportunities to further enhance how these schemes operate and how companies are able to remunerate their staff. We recognise there is further work to be done to align Australia with comparable jurisdictions as outlined in the Standing Committee on Tax and Revenue’s report − Owning a Share of Your Work: Tax Treatment of Employee Share Schemes − tabled in the Parliament on Monday, 23 August 2021.

The Council made a further submission to the Treasury on changes the regulatory and tax arrangements for ESS. Treasury invited the Council and its advisors for further discussions to understand the Council’s concerns around the nature of the proposed disclosure, the penalty regime (including 5 years’ jail time) and the proposed “cap” for employee ownership.

Corporate Collective Investment Vehicles – Regulatory and Tax Frameworks

The Corporate Collective Investment Vehicle legislation was passed through the Parliament in the February Sittings. Now that this legislation has passed, the Council will continue to advocate for a globally competitive Limited Partnership Collective Investment Vehicle and for the Government to prioritise its introduction. The Council will be working with government stakeholders to progress this investment vehicle as a policy priority.

Prudential Standard SPS 530 – Investment Governance in Superannuation

The Council has made a submission to APRA on Prudential Standard SPS 530. This consultation includes a number of enhancements to SPS 530 which relate to valuation practices, stress testing and liquidity management practices for superannuation and called on APRA to consider IPEV’s past and ongoing work in this regard.

Draft R&D Tax Incentive Determination on clinical trials (Phase 0-III)

The Council has made a submission to the Department of Industry, Science, Energy and Resources on a Draft R&D Tax Incentive Determination on clinical trials (Phase 0-III) for an unapproved therapeutic good

Changes to the R&D tax incentive were announced in the 2020-21 Federal Budget that would effectively give the Board of Industry Innovation and Science Australia the ability to provide determinations in order to engender greater clarity and certainty on eligible R&D activities for specific circumstances over and above existing guidance material.

The Council has been invited to attend the R&D Industry Roundtable and will be closely monitoring developments in this area.

Other Policy & Advocacy Initiatives

Division 6C

The Council has continued to progress discussions with the ATO regarding Division 6C – Negative Control. Following an industry roundtable on 26 May, the Council followed up with a letter to the ATO reaffirming the Council’s position with respect to Division 6C of the Income Tax Assessment Act 1936 as outlined in the ATO Guidance in July 2021. The ATO has indicated that the process of finalising this matter is taking some time and has strongly heard the Council’s views and will discuss any final draft with the Council prior to its finalisation.

The Council continues to provide industry data and analysis in combination with thought leadership to enhance knowledge of the industry on key issues and to complement the Council’s advocacy activities in a number of areas.

Australian Private Equity and Venture Capital – The New Normal

The Council continues to partner with Cambridge Associates to produce a range of Australian PE and VC performance benchmarks. The latest update from Cambridge Associates shows the Australian private equity and venture capital has raised a significant $30.3 billion of capital to the end of Q2 2021 In aggregate, over the 3-month period ending June 2021, the industry invested approximately $275 million and distributed more than $1.1 billion, net of fees, back to investors, while the value of unrealized investments increased by $630 million.


Source: Cambridge Associates Database, 30 June 2021, net of fees, expenses and carried interest. Returns presented in Australian Dollar terms.

Political Insights − Australia’s future as a digital economic powerhouse

Steve Lewis, a senior adviser with SEC Newgate Australia, recently interviewed Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy who provided her insights on opportunities for Australia in digital innovation. Read the article here.

Growing bank of knowledge series webinars

Online webinars have continued to feature on the Council’s ‘knowledge-sharing’ agenda. Recent webinars have included The journey towards a taste of glory with insights from Australian Olympians Jessica Morrison and Trent Oeltjen with emerging leaders from the private capital industry on what it takes to become an elite athlete and Building a stronger private capital industry with insights from McKinsey & Company on addressing unconscious bias to build capability and inclusion.

All knowledge series events are available to members for view on-demand at aic.co.