On 6 May 2016, the Tax Laws Amendment Bill 2016 received Royal Assent, enacting additional income tax incentives for new investments in Australian early-stage innovation companies (ESICs). From 1 July 2016, investment in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives. The tax incentives provide eligible investors who purchase new shares with:
- a 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 for their investments in each income year
- a modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than ten years are exempt from CGT. Capital losses on shares held less than ten years must be disregarded.
The maximum tax offset cap of $200,000 does not limit the shares that qualify for the modified CGT treatment.
However, an investor that does not meet the ‘sophisticated investor’ test under the Corporations Act 2001 will not be eligible for any tax incentives if their total investment in qualifying ESICs in an income year is more than $50,000. If more than $50,000 is invested, you will not receive either the tax offset or the modified CGT treatment for any of the shares purchased in that income year.
The tax incentives for early stage investors (sometimes referred to as ‘angel investors’) are contained in Division 360 of the Income Tax Assessment Act 1997.
