ESIC Tax Incentive

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An Early Stage Innovation Company (ESIC) can provide its investors with a tax offset that is ordinarily only available to Angel Investors. It encourages high-net work individuals, mainly Sophisticated Investors (see below definition), to invest in early stage companies. Those who invest in an ESIC may be entitled to:

1. A 20% carry forward tax offset - this is capped at $200,000 and is non-refundable; and/or

2. Different tax treatment, under which investors may be exempt from Capital Gains Tax (CGT) for investments they hold between 1 - 10 years.

Which companies are eligible?

A company classifies as an ESIC if it is not a foreign company, and meets:

• The early-stage test;

• Either one of the following test:

  - 100-point principle test; or

  - Principle-based innovation test.

  What is the ‘early stage test’?

  This test requires that a company must meet the following criteria:

• Have an ABN/ACN;

• A company’s (including subsidiaries) total expenses must be less than (<) $1 million in the year prior to your investment;

• A company’s (including subsidiaries) assessable income must be more than $200,000 in the year prior to your investment; and

• Not a publicly-listed company on the ASX or any other foreign stock exchange.

What is the ‘100-point innovation test’?

To qualify as an ESIC under the 100-point innovation test, the company must obtain at least 100 points from the attached criteria.

What is the ‘Principle-based innovation test’? This requires that a company meet the following criteria:

• Genuine focus on developing one or more new or improved innovations for commercialisation;

• Business relating to that innovation must have high growth potential;

• Company has the potential to be able to successfully scale that business;

• Company has the potential to be able to address a broader than local market, including global markets, through that business; and

• Company has the potential to be able to have competitive advantages for that business.

  
  Which investors are eligible? The ESIC tax offset is largely targeted at Sophisticated Investors. Sophisticated investors are those that meet the following criteria:

• Have a gross income of $250K+ for each of the last two FYs;

• Paid $500K+ for the qualifying ESIC shares, either in a single offer or including any amounts previously invested and that are the same class of shares you are to hold in the company;

• Are offered the shares through a financial services licensee who can assure your status as a sophisticated investor;

• Meet the ‘professional investor’ definition under the Corporations Act; or

• Have or control gross assets of >$10M.
  

  For those who aren’t sophisticated investors, they will only be eligible for the ESIC tax offset if the total amount they invest in an income year is less than (<) $50K.