By Alexis Kokkinos - March 17, 2016
Despite the unimaginative name, its pages set out new laws that, if passed, will make innovation, risk-taking and entrepreneurship the cornerstones of future economic growth.
Two entity types in particular are the target of the new measures – Early Stage Innovation Companies (ESICs) and Early Stage Venture Capital Limited Partnerships (ESVCLPs). Both of these measures provide significant tax incentives for investors in eligible early stage entities.
For ESICs, the new measures broadly provide a non-refundable tax offset for investors and an ability to sell shares CGT free. These concessions only apply in relation to startup innovation companies, which generally include startup companies that meet the criteria of being “innovative” (as defined), and also have less than $200,000 turnover and $1M of expenses in the prior year.
An entity acquiring newly issued shares in an Australian ESIC may receive a non-refundable carry-forward tax offset of 20% of the value of their investment, subject to a maximum offset cap amount of $200,000, with a total annual investment limit of $50,000 applicable to non-sophisticated investors.
Investors can also disregard capital gains realised on shares in qualifying ESICs that have been held between one and ten years, but investors must disregard any capital losses realised on these shares held for less than ten years.
The tax incentives are designed to promote desired investment in innovative, high-growth potential start-up companies.
With regards to ESVCLPs, a number of modifications have been introduced to make the new measures even more attractive for investors. The Bill will:
Pitcher Partners welcomes the proposed new measures, which will make starting and maintaining viable and competitive businesses in the emerging innovation and technology markets much easier for budding entrepreneurs.
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