Start-Ups Who Have Developed “Something” Can Be Attractive for Investors

Accountant's Minute 220

Start-ups – Looking for Finance?

Have you got clients who have developed a new or significantly improved product, process, service, organisational or management methodology who are keen to raise finance to complete the commercialisation of their research activities?

If so, Early Stage Innovation Company Status could assist your client to be able to attract investors.

Firstly, let’s look at the key requirements for the “First Test” to be able to satisfy the Early Stage Innovation Company Status.

  • The company cannot be listed on a stock exchange anywhere in the world.
  • The company has to be incorporated in the last three years (some companies aged under six years may also be eligible).
  • The company must have developed either a new or significantly improved product, process, service, organisational or management methodology.
  • The company and its 100% subsidiaries (if any) incurred total expenses of $1 million or less in the income year before the current year.
  • The company and its 100% subsidiaries (if any) have a total assessable income of $200,000 or less (excluding any grant funds from the Accelerating Commercialisation Grant) in the income year before the current year.
  • If the company passes the “First Test” it then needs to move to the “Second Test” – “the Gateway Test”

In the Gateway Test” a company needs to accumulate 100 points from answering a series of questions.

If the company is able to earn 100 points or more and has appropriate supporting evidence available it has self-assessed as an Early Stage Innovation Company.

If the company does not accumulate 100 points under the “Gateway Test” it then moves on to the “Principles Test” which requires five questions to be answered with the company then submitting the documentation to the Australian Taxation Office for a ruling as to whether the company has successfully qualified as an Early Stage Innovation Company.

A company which has successfully achieved the status of an Early Stage Innovation Company is able to negotiate with investors who will be able to receive a tax rebate based on the amount of their investment in the company.

“Sophisticated investors” can obtain a rebate of 20% of their investment up to a total rebate of $200,000.

Retail investors can obtain a rebate of 20% up to a maximum investment of $50,000 – a maximum taxation rebate of $10,000.

Investors who retain the original shares for longer than twelve months and less than ten years are able to avoid any Capital Gains Tax that might have been applicable when the shares are sold.

Most companies are going to need assistance from proactive accountants to be able to produce the necessary documentation to satisfy investors and the Australian Taxation Office that the company has achieved the status of being an Early Stage Innovation Company.

You can obtain more information on the Early Stage Innovation Company Process from “Want to Know More?”

I invite you to listen to the Accountants Minute Video which will give you more details on the operation of Early Stage Innovation Companies which you may be able to use as strategies with some of your clients during 2020.

If you have a friend or colleague who you think might find this article interesting, please forward it to them.

Have a Great Day!

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