On this page you can find more information about:
- How to calculate the early stage investor tax offset?
- How does a modified CGT treatment apply?
- Who is qualified for the tax incentives?
- What if the company is ceased to be an ?
- Investing as a member of a trust or partnership?
- Investing as a superannuation fund?
The early stage investor tax offset is generally equal to 20% of the amount paid for your qualifying investments. Wholesale investors are capped at a maximum tax offset amount of $200,000 for each income year. However, if you are not a wholesale investor, the maximum early stage investor tax offset that you can claim is $10,000, as your total annual investment in all qualifying ESICs cannot exceed $50,000.
HOW DOES A MODIFIED CGT TREATMENT APPLY?
Under modified capital gains tax (CGT) treatments, capital gains on qualifying shares that are continuously held 1-10 years may be disregarded. Investors that don't meet the 'wholesale investor' test under the Corporations Act 2001 won't be eligible for any tax incentives if their total investment in qualifying ESICs in an income year is more than $50,000. The maximum cap of $200,000 that applies for wholesale investors tax offset does not limit the tax exemption on capital gains. This limit is intended to ensure that the tax incentives don't encourage retail investors to be over-exposed to the risk that is inherent in investing in qualifying ESICs.
WHO IS QUALIFIED FOR THE TAX INCENTIVES?
To qualify for the tax incentives, investors must have purchased new shares in a company that meets the requirements of an ESIC® immediately after the shares are issued. The shares must be issued on or after 1 July 2016.
The early stage investor tax incentives will not be available to you if:
- you didn't purchase the shares in the ESIC® directly from the company as newly issued shares
- you are a widely held company or a wholly-owned subsidiary of a widely held company
- your total investment in one or more ESICs for the income year is more than $50,000 and you didn't meet the wholesale investor test in relation to at least one of those share offerings
- you or the ESIC® are affiliates of each other at the time the shares are issued
- you hold more than 30% of the equity interests in the ESIC® (including any entities connected with the ESIC®) immediately after you are issued with the new shares.
- you acquired the shares under an employee share scheme.
If the company no longer meets the ESIC® requirements after this test time, this won't affect the investor's entitlement to the early stage investor tax incentives.
WHAT IF I INVEST AS A MEMBER OF A TRUST OR PARTNERSHIP?
A member of a trust (a beneficiary or unit-holder) or partnership (a partner) may be entitled to the early stage investor tax offset if they are a member of the trust or partnership at the end of the income year, and the trust or partnership would be entitled to the tax offset for that income year if it were an individual investor.
In some cases, the members of a trust or partnership may include another trust or partnership. In this situation, the tax offset passes to the ultimate member that is not a trust or partnership.
WHAT IF I INVEST AS A SUPERANNUATION FUND?
If the investor is a superannuation fund, the trustee of the fund and not the fund members, would be entitled to the tax incentives (tax offset and the modified CGT treatment).
For further information, please refer to ESIC® Hub.