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