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Tax incentives for early stage investors

Investors who buy new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

Last updated 6 April 2021

From 1 July 2016, if you invest in a qualifying early stage innovation company (ESIC), you may be eligible for the tax incentives for early stage investors (sometimes referred to as 'angel investors') contained in Division 360 of the Income Tax Assessment Act 1997.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • non-refundable carry forward tax offset equal to 20% of the amount paid for their eligible investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than 10 years must be disregarded.

The maximum tax offset cap of $200,000 doesn't limit the shares that qualify for the modified CGT treatment.

Investors who don't meet the 'sophisticated 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. 

See the requirements to meet the sophisticated investor test.

There is a limit on the total amount you can invest to access the tax incentives if you don't meet the test.

Tests that determine if a company will qualify as an early stage innovation company (ESIC).

Information for ESICS including requesting a ruling, what you need to report and how to report.

Information for investors including what if the company has a ruling and how to claim the offsets and more.

The decision tool will help you work out if you're eligible for the tax offset and if a company qualifies as an ESIC.

Rules apply to prevent taxpayers from obtaining tax benefits by entering into contrived or artificial arrangements.