Early-Stage Investment Companies – are you eligible for a tax incentive?

Are you an investor of an Early-Stage Investment Company (ESIC)? If so, you may be eligible for significant tax incentives.

Find out about the tax incentives available, eligibility requirements, and key dates.

Tax Incentives
As an eligible investor with new shares in an ESIC, you are entitled to:

• A non-refundable carry forward tax offset of 20% of the amount paid for investments, capped at $200,000 per year
• Modified capital gains tax treatment, where capital gains on qualifying investments may be ignored if the investment is held for at least 12 months and less than 10 years

Qualifying as an ESIC
In order for the investor to receive these incentives, the company must qualify as an ESIC by meeting the following tests:

• Be incorporated and registered with the Australian Business Register
• Had total expenses of $1 million or less in the previous year
• Had assessable income of $200,00 or less in the previous year
• The company must not be listed on any Stock Exchange
• The company must either meet the 100-point innovation test by obtaining at least 100 points against certain innovation criteria or meet the principles-based innovation test by meeting the five requirements listed here.

Investor eligibility
There are also a number of requirements you must satisfy as an investor to receive these benefits. The complete list of eligibility requirements can be found here, but primarily, the investment needs to consist of newly issued shares representing less than 30% of the equity.

An additional set of requirements, known as the sophisticated investor test, also dictates the extent of benefits which you can receive from this incentive, and its eligibility criteria can be accessed here.

Key dates
ESICs are required to report new investments by 31 July each year. This date is just around the corner, so if you believe your company may qualify as an ESIC, please seek advice and submit the report to the ATO.

If you believe you have invested in an Early-Stage Innovation Company, please let us know so we can include the credit on your tax return.

Please call or click to discuss with a Macro Group Team Member if you would like further information.

The Macro Group Team

Published on 21 July 2022