Tax incentives for investors
Over 4,500 startups are missing out on equity finance each year.
The Government is making some changes to our tax system to incentivise investors to direct their funds towards innovative, high-growth potential startups.
What is changing?
Concessional tax treatments will be made available for investors who support innovative startups, including:
- A 20 per cent non-refundable tax offset on investment capped at $200,000 per investor, per year.
- A 10 year capital gains tax exemption for investments held for three years.
Who is eligible?
The incentive will be available for investments in companies that:
- undertake an eligible business (scope to be determined)
- that were incorporated during the last three income years
- aren’t listed on any stock exchange
- have expenditure and income of less than $1 million and $200,000 in the previous income year respectively.
The scheme is based on the successful UK Seed Enterprise Investment Scheme which raised over AUD$500 million in startup investment for almost 2,900 companies in its first two years.
When is it happening?
The scheme is expected to commence from 1 July 2016 as soon as amendments receive Royal Assent.
Legislation for the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 was passed on 4 May 2016, announced by Minister for Industry, Innovation and Science.
Once the legislation receives Royal Assent, the measures will apply from the 2016-17 income year.
What to do
How it will work in practice
Jessica is the founder of a startup business called PaySmart Pty Ltd that is developing a software application to automate bill payments. She is looking to raise $200,000 in equity finance to continue developing of the software.
Alex is an experienced early stage (angel) investor and believes that PaySmart has excellent growth potential. He invests $200,000 and claims a 20% non-refundable tax offset, reducing his income tax payable by $40,000.
In addition to contributing capital, Alex uses his business skills to help PaySmart grow. He sells his shares for $400,000 four years later. As Alex has held the investment in PaySmart for the minimum three year period and less than 10 years, the full capital gain of $200,000 is exempt from capital gains tax.
Information courtesy http://www.innovation.gov.au/