Accountant's Minute 197
When the then Australian Prime Minister, Malcolm Turnbull announced the Coalition Government’s Innovation Policy in December 2015 he indicated that two new types of corporate entities would be established.
These entities were:
An Early Stage Innovation Company status can grant to eligible investors the opportunity to be able to claim a tax rebate on the value of their investment (subject to limitations) and these original investors may be entitled to avoid Capital Gains Tax on their initial investment in the company.
If the company has developed a new product, process, service, marketing or organisational methods and:
If the company has passed this series of tests the company may then move into the following tests:
If the company has undertaken various activities it can earn points. If the points earned exceed “100” the company can qualify under the “Gateway Test”.
Points can be earned from:
If the company fails to qualify under the “Gateway Test” it may then utilise the “Principles Based Test” to determine whether the company might be eligible to be deemed an Early Stage Innovation Company.
The “Principles Based Test” requires 5 questions to be answered positively if the company is going to be able to qualify under the Principles-based Test. These questions relate to:
The test requires the company to be able to substantiate its answers to each of these questions. The Taxation Office encourages companies to submit answers to these questions together with supporting evidence to the Australian Taxation Office for a ruling as to whether the company qualifies as an Early Stage Innovation Company.
Benefit For Investors
There are 2 categories of investor for an Early-Stage Innovation Company:
The tax rebate is 20% of the investor’s investment in the company up to the investment category limit (this means that the maximum tax rebate for a retail investor is $10,000) and the maximum tax rebate for a sophisticated investor is $200,000.
Exemption From Capital Gains Tax
The exemption applies to the original owners of the shares if they hold the shares in the company for longer than 12 months and less than 10 years there is no capital gains tax paid on the sale of the shares.
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Episode 197 - Early Stage Innovation Company – a “Cousin” Entity to a Crowd Sourced Funding Equity Company
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