If you invested in an Early Stage Innovation company (ESIC) during FY17, you may be eligible to receive tax incentives. These benefits aim to reward ‘angel’ investment in innovation companies, providing eligible investors with:
· A non-refundable carry forward tax offset of 20% of the qualified investment amount (Capped at $200,000 per investment per annum)
· Modified Capital Gains Tax treatment, whereby capital gains may be disregarded if the shares are continuously held for a minimum of 12 months and less than 10 years
· Early stage investor tax offsets can carry forward into future income years
However, in order to receive these tax benefits, all investments within FY17 must be reported to the Australian Tax Office by the 31 July 2017.
What you need to know as an ESIC:
Investors are able to claim the ESIC tax incentives as long as the company qualifies as an Early Stage Innovation Company immediately after the new shares are issued to the investors. In order to qualify, a company must satisfy:
· The Early Stage Test and
· Either of:
a. The 100 point innovation test or
b. The principles based innovation test
If the company qualifies as an ESIC, the company must report all of their investor’s qualifying investment during the financial year. In order to do so, the ESIC will require the investor details (name, ABN, address and details of share issue). The reporting of this information can be undertaken online here.
The ESIC is required to report the information of investment by 31 July each year. Reporting of this information can be done electronically, and is available on the Business Portal by logging on and selecting ‘Online Forms’ in the left hand menu. It is also available on the Tax Agents Portal under ‘Client Forms’ in the left hand menu.
What you need to know as an investor:
In order to qualify as an early stage investor, all investments must have been for the purchasing of new shares in a company issued on or after 1 July 2016. In order to qualify as an investor in an ESIC:
· As the onus is on the investor to prove the company qualifies as an ESIC, the investor must keep detailed records outlining their entitlement to the ESIC tax incentives, including documentation of the amount and time of investment
· The investor should ensure that the company has properly reported the qualifying investment to the ATO
· Should the company qualify as an ESIC, the investor’s accountant must include the documentation of investment in the tax return for FY17 in order to receive the benefit
Following the ESIC’s submission of the form, the ATO will assess the investor’s qualification for these tax incentives. It is important for the investors to also lodge their tax return as soon as possible in order to demonstrate their entitlement for the early stage investor tax offset.
For more details, please look at the following ATO page.