Tax Incentives for Early Stage Investors

 

To encourage innovation and entrepreneurship, the government has recently passed a bill to provide early stage investors who purchase new shares in qualifying early stage innovation companies (ESICs) with concessional tax treatment from 1 July 2016.

 

Eligible investors are entitled to:

 

  • A 20% immediate carry forward non-refundable tax offset on their investment, capped at $200,000 per investor per year.

 

  • A modified Capital Gain Tax (CGT) treatment where capital gains on qualifying shares are disregarded. 

 

The $200,000 cap does not limit the shares that qualify for the modified CGT treatment. However, both the investors and the company need to meet various requirements that are tested at specified times to be eligible for the CGT treatment.

 

The early stage investor tax incentives are available to both Australian resident and non-resident investors.

 

However, special rules apply if the investor is a trust, partnership or a superannuation fund in relation to the entitlement to the tax incentives.

 

To qualify for the tax incentives, investors must:

 

  • Purchase the shares as equity interests in the ESIC directly from the company as newly issued shares. The shares cannot be acquired under an employee share scheme.
  • Invest no more than $50,000 in ESIC in an income year. Otherwise, investors need to meet the ‘sophisticated investor’ test to be eligible for any tax incentives.
  • Not hold more than 30% of the equity interests in the ESIC, and must not be connected with or affiliates of the ESIC.

 

Please be aware that the company must meet either the ‘100-point innovation’ test or ‘principles-based’ innovation test to be considered as an ESIC. 

 

For more information, please click the following link:

 

https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/

 

Should you have any questions please contact Melissa Mazzitelli at Lombardi Partners on 03 9328 5300 or melissa@lombardipartners.com.au

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