Early Investors & Tax Incentives


Early Investors in innovative companies

Considering investment opportunities for innovative Australian start-up companies?  

In December 2015, the Turnbull Government announced the National Innovation and Science Agenda, introducing new tax incentives for early stage investors in innovative Australian companies. The legislation was passed by the Australian Parliament in early May 2016.

The tax incentives are to provide concessional tax treatment for investors through non-refundable tax offset and a capital gains tax (CGT) exemption, provided investors meet certain eligibility criteria. 

An incentive to support start-ups

Australian start-ups have long lamented the lack of start-up funding and early investment, often championing a US-style venture capital culture as a solution to the funding needs innovative companies have in the early stages of development or growth.

With innovation a large plank of Prime Minister Turnbull's economic growth strategy, the incentives have been broadly welcomed. 

However, what does the opportunity and benefit for early investors actually look like? 

What is the incentive for investors? 

Investors would benefit from paying no capital gain from shares in start-up innovation companies where the shares have been held for 1-10 years, with the ability to claim a non-refundable tax offset of 20% of the value of their investment. 

The maximum for the offset is $200,000. 

Which companies can investors target for potential investment? 

The eligibility criteria for the incentives is fairly rigid, as the start-up (innovative) company needs to meet certain qualifying conditions.

Eligibility Criteria: What are the conditions?

  • Method 1: Principles-based
  • Method 2: 100 point innovation test
  • Method 3: ATO private ruling
 Benefits  What  It Means For You
Non-Refundable Tax Offset   Investors/shareholders receive a non-refundable carry-forward tax offset of 20% of the value of their capital investment.
Capital gains tax (CGT) Exemption   CGT exemption for qualifying shares held for at least 12 months , but less than 10 years.  Any capital losses are disregarded if the shares are held for less than 10 years.  Shares held for 10 years + enable eligible shareholders to receive market value uplift for the cost base on the 10th year anniversary date.
Eligibility  The company needs to be an 'eligible innovation company', incorporated in Australia in past 3 income years, assessable income $200k or less; expenditure of $1m or less  in the prior income year; not listed on any stock exchange
Eligible Activities  Method 1: Principles-based
 Method 2: 100 point innovation test
 Method 3: ATO private ruling
Timing  The incentive scheme will apply from 1 July 2016.

What should you do next? 

Contact Bates Cosgrave on 02 9957 4033 for more information about the early investor legislation and how it may benefit either the growth of your innovative company - or open up opportunities for investment in companies that are developing innovative commercialisation projects.

For more information, please contact us on 02 9957 4033 to discuss your eligibility.

Download PDF version: Early Investors & Tax Incentives

Last updated July 2016. This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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