TABLE OF CONTENTS
clients
see Jimmy Yu
Don Hoang
every year https://www.businessnews.com.au/article/Investment-scheme-most-are-missing
When an investor invest in a early stage innovation company (ESIC), the ESIC need to go on TAP > [client company] > CLIENT FORMS > fill in Early stage innovation company report early
Client should see on their prefill this
Client should provide us the following:
Client should also get
- share certificate showing cost and date
- ESIC certification proving tax offset is available to them - they only need to provide this once.
- optional - esic tax offset guide
Qualify as an ESIC
For an investor to be entitled to the early stage investor tax incentives, the company they invest in must qualify as an Early Stage Innovation Company (ESIC) immediately after the new shares are issued to the investor. If the company no longer meets the ESIC requirements after this test time, this won't affect the investor's entitlement to these tax incentives.
A company will qualify as an ESIC if:
- not a foreign company under Corp Act
- meets both:
- early stage test
- and one of the following: 100 point innovation test or principles based test
The investor must determine whether they are eligible for the early stage investor tax incentives.
The onus is on the investor to confirm that the company qualifies as an ESIC at the relevant test time. If the investor has claimed for tax incentives and the company is later found not to be an ESIC at the relevant test time, the investor will need to amend their claims. The investor should keep records to support their entitlement to the early stage investor tax incentives.
Carry forward
If you claimed the early stage investor tax offset in one or more earlier income years commencing on or after 1 July 2016 and did not apply all or part of the tax offset in those earlier income years, you may be able to carry forward and use those parts of the tax offset that were unapplied in this income year. To work out whether you can carry forward and use all or part of the early stage investor tax offset from an earlier income year to this year, see Division 65 of the ITAA 1997.
The unused early stage investor tax offset carried forward from a previous year is reduced by $0.30 for every dollar of unused net exempt income, provided you had taxable income for that year.
Unused net exempt income
Unused net exempt income is any net exempt income left after deducting any tax losses of earlier income years from that year's net exempt income.
If you have unused net exempt income and are unsure how to calculate the early stage investor tax offset carried forward from a previous year, contact us. Otherwise, read on.
The amount of your unused early stage investor tax offset will help you to complete Step 5 when working out your 2023–24 tax offset
exempt income
Exempt income is income that you don't pay tax on (that is, it's tax-free). You may still need to include this income in your tax return for use in other tax calculations.
Examples of exempt income can include:
- some government pensions and payments, including the invalidity pension
- some education payments.
If the only income you receive during an income year is exempt income, you don't have to pay any income tax on it.
200k cap
Investors and their affiliates are entitled to a maximum offset of $200,000 in an income year. This includes any offsets that are carried forward from prior years' investments and offsets claimed on indirect investments.
Example - 200k cap and carry forward
- 2017FY Jason, a sophisticated investor, carried forward a $50,000 early stage investor tax offset
- 2018FY he pays $950,000 to acquire qualifying shares in ESICs. Jason's entitlement for the early stage investor tax offset is $190,000.
- As the $200,000 maximum cap applies to his 2017–18 income year and carried forward amounts, he can only claim
- the $50,000 carried forward amount 2017FY
- plus $150,000 2018FY. The balance of the 2017–18 income year amount ($190k - $150k = 40k) can neither be claimed nor carried forward to future years.
CGT
- a 10 year exemption on capital gains tax for investments held as shares in an ESIC for at least 12 months, provided that the shares held do not constitute more than a 30 per cent interest in the ESIC.
- The maximum cap of $200,000 that applies for the early stage investor tax offset DOESN'Tlimit the shares that qualify for the modified CGT treatment.
- However, if you exceed the $50,000 investment limit for investors who don't meet the sophisticated investor test, you won't receive either the early stage investor tax offset or the modified CGT treatment for any shares acquired in that income year.
- <12 months =
- any gain is declared
- any loss is DISREGARDED
- >12 month + <10 years =
- any gain can be DISREGARDED
- any loss is DISREGARDED
- >10 years
- the cost base becomes the market value on the 10th anniversary of the share being issued to you. Meaning capital gains or losses that happen will be recognised from the 10th year onwards
- We provide guidance and advice products that deal with market valuation for tax purposes, and accepted principles of valuation which are equally applicable to shares that are not listed on a stock exchange.
Summary:
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Investor requirements
- newly issued shares
- the shares ARE equity interest (ownership of ESIC) - you didn't loan money to ESIC
- you CANNOT hold equity interest in ESIC IMMEDIATELY AFTER you are issued with the new shares that carry the right to either:
- receive more than 30% of any distribution of income/capital from the ESIC or entities connected with the ESIC
- exercise control of more than 30% voting power
- you CANNOT hold equity interest in ESIC IMMEDIATELY AFTER you are issued with the new shares that carry the right to either:
- CANNOT acquire shares via employee share scheme
- you ARE NOT early stage venture capital limited partnership
- cap at
- 50k if you don't meet sophisticated investor test to atleast one of those share offerings
- you ARE NOT an affiliates of each other at the time the shares are issued - business affairs, or act in accordance with the ESIC's directions or wishes or in concert with
Investor entities
If the investor is a trust or partnership, special rules apply so that the entitlement to the tax offset and the modified CGT treatment flow through to
- the member of the trust (a beneficiary, unit holder or object)
- or partnership (a partner),
- or to the ultimate member if there is a chain of trusts or partnerships.
The tax offset will not flow through to the member if the member is a widely-held company or a wholly-owned subsidiary of a widely held company.
If the investor is a superannuation fund, the trustee of the fund – not the fund members – would be entitled to the tax offset and the modified CGT treatment.
Trust or partnership
A member of a trust (a beneficiary, unit-holder or object) or partnership (a partner) may be entitled to the early stage investor tax offset if all the following apply:
- they are a member of the trust or partnership at the end of the income year
- the trust or partnership would be entitled to the tax offset for that income year if it were an individual investor
- they are not a widely held company or a 100% subsidiary of a widely held company.
If the members of a trust or partnership include another trust or partnership, the tax offset passes to the ultimate member that is not a trust or partnership.