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Innovative investor incentives
If your innovative idea has real legs for commercialisation in business then the government has set up a tremendous incentive for venture capitalist investors. It’s a sign our politicians are wanting to support the innovation of entrepreneurial Australians and it’s also an indication of the global vision of these entrepreneurs. The incentive is in the form of an Early Stage Innovation Company (ESIC) and they have a few criteria and advantages that are summarised.
From 1 July 2016, certain investors are able to access tax incentives in connection with investments in these qualifying early stage innovation companies. The concessions for early stage investors include a non-refundable tax offset and a CGT exemption.
Key Points:
- Basic conditions:
- The company issues the investor with new shares that are equity interests on or after 1 July 2016;
- The investor and the company are not affiliates of each other; and
- Immediately after the shares are issued, the investor does not hold more than 30% of the equity interests in the company.
- The tax offset can also apply when a trust or partnership invests in an ESIC. In this case the tax offset is provided to certain beneficiaries of the trust or partners of the partnership.
- The benefit of the tax offset can pass from a trust to its beneficiaries regardless of whether the trust has a profit or loss for the year and if the trust is a discretionary trust it appears that the trustee can choose how to split the tax offset.
Tax Benefits:
- Tax offset: Non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year.
- CGT Exemption: If the shares are held for at least 12 months but less than 10 years then any capital gain or loss made from the CGT event is disregarded. If the shares are held for 10 years or more then the first element of the cost base of the shares will be based on their market value at the 10th anniversary of the shares being issued to the investor.
These are some enticing incentives being offered to investors, so talk to me if you are thinking of this type of investment.
Pat Mannix, Partner, Paris Financial
Follow me on Twitter @mannix_pat