If you don't meet the sophisticated investor test in relation to at least one offer of qualifying shares in an ESIC during the income year, there is a limit on the total amount you can invest to access the tax incentives.
In such a case, your investments in one or more qualifying ESICs in an income year must not exceed $50,000 in total.
If your total investments exceed $50,000, you won't be eligible for:
- the early stage investor tax offset for any of your investments in that income year, or
- the modified CGT treatment for any of your investments in that income year.
This applies to all of the shares that were issued to you in that income year, including to the amount of your investments that are below $50,000.
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.
Example: Limits for investors who don't meet the sophisticated investor test
Tim pays $50,000 for new shares in a qualifying ESIC on 1 October 2016. Tim is not a sophisticated investor for this share offer. This is the maximum amount that he can invest in ESICs in the 2016–17 income year to access the tax incentives (unless he is a sophisticated investor in relation to a later ESIC share offer).
If Tim pays another $10,000 for qualifying shares in an ESIC on 1 November 2016 and is not a sophisticated investor at this time, he won't be entitled to receive any early stage investor tax incentives, including in relation to the shares that he purchased on 1 October 2016.End of example
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