Tax incentives for investors in Early Stage Innovation Companies

As part of the Government’s broader plan to encourage innovation in Australia, investors in Early Stage Innovation Companies (ESICs) will have access to certain tax concessions. Are you eligible?

2016-09-27

What are the incentives?

  • 20% non-refundable carry forward tax offset (capped at $200K i.e. $1m investment)

  • Modified CGT treatment:

     - shares held for at least 12 months and less than 10 years (capital gain disregarded)
     - shares held for less than 10 years (capital loss disregarded)
     - market value cost base applies at end of 10 year period. 

Qualifying criteria: Investor

Investors must meet the following requirements to be eligible for tax concessions:

  • Purchased shares after 1 July 2016 in a qualifying Early Stage Innovation Company (ESIC) – has to be through newly issued shares, not transferred shares

  • Shares are equity interests in the company

  • The investor is not a widely held or listed company

  • Total investment is not more than $50K if non-sophisticated investor. No cap on investment for sophisticated investor

  • The investor and the ESIC are not affiliates of each other at the time the shares are issued

  • The investor holds no more than 30% of the equity interests in the ESIC

  • The investor didn’t acquire the shares through an ESS.

Other notes

Offset flows through to underlying members of partnerships/trusts, and investors can be residents or non-residents.

Qualifying criteria: ESIC

An ESIC needs to meet both of the following to be eligible:

  • The early stage test; and

  • Either 100 point innovation test or principles based innovation test.

Click here to find out more about the qualifying criteria for ESICs. 

Reporting and ruling

Companies need to report information to the ATO if new shares have been issued which could lead to an investor being entitled to the incentives. Reporting must be done via a form (yet to be released) by 31 July each year for new shares issued in the previous year. i.e. for any shares issued in the 2017 income year, the form needs to be submitted to the ATO by 31 July 2017.

Companies can apply for a ruling about whether they meet the 100 point innovation test or Principles Based Innovation Test.

Are you eligible?

If you’re interested in finding out if these concessions may apply to your circumstances, or if you have any questions, please contact either Helen Wicker or Abi Chellapen to discuss. 

Click here to find out more.

 

Helen Wicker
Partner, Tax
E hwicker@shinewing.com.au

Abi Chellapen
Associate Director, Tax
E achellapen@shinewing.com.au