When the government established the Early Stage Innovation Company amendments to the Taxation Act some people were surprised as to why this legislation was enacted via the Taxation Act and not the Companies Act.

The reason was that the Early Stage Innovation Company legislation introduced some attractive taxation benefits for investors.  The company that receives investors’ funds, for the issue of ordinary shares, do not receive any taxation benefit relating to the receipt of those funds (other than much needed capital for their businesses) the taxation benefits are solely for investors.

Retail investors can invest up to $50,000, in a 12 month period, to an Early Stage Innovation Company to be eligible to obtain the taxation benefits.  There is no limit to the amount of investment that a sophisticated investor can make.

Subject to the Australian Taxation Office and AusIndustry being satisfied that the company is an Early Stage Innovation Company, investors will obtain a 20% tax rebate on the amount of the investment that they made.  The maximum tax rebate for a retail investor is $10,000 and for a sophisticated investor the maximum tax rebate is $200,000.

The investors are also potentially entitled to the benefit of a capital gains tax exemption if they hold those shares in the company for more than 12 months and less than 10 years.

The government has introduced these incentives to encourage investors to consider investing in new innovative companies in Australia that have developed new products, processes, services, marketing or organisational methodologies.

An eligible company will normally be under three years of age (although in some cases the company could be up to 6 years of age) with expenditure in the previous year of less than $1 million and income in the previous year of less than $200,000, not including any grant income received from the Accelerating Commercialisation Grant.


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