Tax incentives to help Early Stage Innovation Companies attract funding

That’s why the Australian Government’s ESIC measures to incentivise investment in these companies are key to supporting the Federal Government’s sovereign manufacturing innovation agenda. 

Why is the ESIC regime so attractive?

The ESIC regime provides tax incentives to investors who acquire shares directly from ESICs, assisting in the funding of those companies.  

• Tax offset: The investor will be eligible for a tax offset calculated based on 20 per cent of the investor’s investment in the ESIC and is capped at $200,000 for “sophisticated investors” and $10,000 for “non-sophisticated investors”.
• CGT exemption: Where the shares have been continuously held for at least 12 months and less than 10 years, any CGT gain or loss will also be disregarded for tax purposes. For ESIC shares that are held for a period greater than 10 years, an uplift in the tax cost base of the shares to the market value of the shares 10 years after acquisition.
  
  

Is your company ESIC eligible?

To be an eligible, your company broadly needs to be an innovative company in its early stages with high-growth potential, a geographically broad offering and the ability to scale-up.

The tests to determine this are:

Gaining certainty through a private binding ruling (PBR) 

In order to obtain the above concession, we encourage your company to obtain a private binding ruling (PBR) from the ATO, confirming that the company is an ESIC company. 

Research and Development Tax Incentive

Depending on the route taken with regards to the ESIC tests, the information included as a part of an ESIC Application can often be a great starting point to consider leveraging the R&D Tax Incentive (RDTI). The program provides targeted R&D tax offsets designed to encourage companies to engage in R&D in Australia. 

The RDTI has different levels of support depending on a company’s aggregated turnover (grouping rules apply):

• Where turnover is below $20m, offsets are refundable and equal to the company’s corporate tax rate plus an 18.5 per cent premium on eligible expenditure. In some cases, this could result in a cash refund from the ATO. 
• Where turnover is above $20m, the offset is non-refundable but can be carried forward to offset future income tax obligations. The offset rate is equal to the company’s corporate tax rate plus 8.5 per cent, but may be up to 16.5 per cent depending on the R&D intensity for the income year. The higher rate is available to companies that achieve an R&D intensity (spend) of greater than 2 per cent of their total expenses.

The RDTI is a self-assessment program. It’s crucial that any RDTI claim comprises robust governance processes and substantiating documentation. 

Given the time pressures and the administrative burdens, please reach out to discuss your eligibility for these tax concessions and innovation incentives. Our experts will be able to assess your eligibility for these significant concessions and help you navigate the requirements.

Learn more about how our Research and Development (R&D) Tax Incentive services can help you

Visit our Research and Development (R&D) Tax Incentive page