The Government has introduced new tax incentives to boost investment in early stage innovation companies in Australia.
In particular, these tax incentives are designed to encourage new investment in small Australian innovation companies, often referred to as ‘startups’, with high-growth potential.
In our experience, the startup community are very interested in accessing the concession for their investors, however there have been difficulties with entities satisfying the relevant eligibility requirements.
To assist your understanding of the new tax incentive, we have summarised the key points below:
What are the tax incentives for investors?
What is the maximum offset amount that can be claimed?
A tax offset directly reduces the amount of tax payable on the taxpayer’s taxable income. The maximum tax offset that can be claimed under the new provisions is dependent on the type of investor:
When can an investor access the incentive?
The basic requirements for an investor to access the incentives can be summarised as follows:
The incentives are available to both Australian residents and non-residents.
Where investments are made indirectly (through a trust or partnership) the value of the tax incentives will flow through to the beneficiaries or partners.
What is an ESIC?
To qualify as an ESIC, a company must:
The Early Stage Limb
In order to satisfy the Early Stage Limb, the following must be satisfied by the ESIC (including any wholly owned subsidiaries):
It must have been either:
The Innovation Limb
To satisfy the Innovation Limb, the following must be satisfied:
In our experience, to obtain certainty on whether the entity satisfies the Innovation Limb, a private ruling should be lodged with the ATO.
At a particular time in the income year, the entity must obtain at least 100 points from the following list of criteria:
If you are interested in finding out if these tax incentives may apply to your circumstances, or if you have any questions, please contact your adviser.
Matthew Saad – Partner, Tax Advisory