Eligibility to claim the early stage investor tax offset
You may be entitled to claim the early stage investor tax offset for the income year if you:
- invested in an early stage innovation company during the current income year
- have an amount of unused early stage investor tax offset carried forward from a previous year.
The maximum offset (including current income year and carried forward prior year amounts) that you, and your affiliates combined, can claim in the current income year can't exceed $200,000.
Any unused portion of the early stage investor tax offset can be carried forward to future income years, subject to the tax offset carry forward rules in Division 65 of the ITAA 1997.
For more information about the early stage investor tax offset and eligibility requirements, see Tax incentives for early stage investors.
M – Current year tax offset
Write at item 23 – label M the amount of early stage investor tax offset referrable to the current income year.
Include this amount in your total in the Calculation statement at label D Non-refundable carry forward tax offsets.
If you are eligible for the early stage investor tax offset as a result of investing in an early stage innovation company during the current income year, follow the steps below.
Step 1: Work out the total amount you paid for eligible shares
Work out the total amount you paid for eligible shares in all early stage innovation companies during the current income year.
If you don't meet the requirements of the 'sophisticated investor' test under the Corporations Act 2001 for at least one of your investments in an early stage innovation company made during the year, the step 1 amount must not exceed $50,000. If you don't meet the test and the step 1 amount exceeds $50,000 you can't claim this offset.
Step 2: Work out 20% of step 1
Multiply the step 1 amount by 20%.
Step 3: Work out your entitlement to any early stage investor tax offsets
Identify your entitlements to any early stage investor tax offsets as a beneficiary of a trust or a partner in a partnership that has invested in an early stage innovation company during the current income year.
Investments should not entitle an investor to both the early stage venture capital limited partnership (ESVCLP) tax offset and the early stage investor tax offset. An eligibility requirement for the early stage investor tax offset has the effect that an investor will only qualify for the offset if they are not an ESVCLP.
Step 4: Work out step 4 amount
Add together the amounts from step 2 and step 3. This is the step 4 amount.
Step 5: Work out the step 5 amount
Subtract from $200,000 the amount (if any) reported at item 23 – label R Tax offset carried forward from previous year.
The result is the step 5 amount.
Step 6: Work out the amount to write at label M
If the step 4 amount is equal to or less than the step 5 amount, write the step 4 amount at label M.
If the step 4 amount is greater than the step 5 amount, write the step 5 amount at label M.
The amount you report at label M may need to be further reduced if any of your affiliates are entitled to the early stage investor tax offset (whether for investments they made in the current income year or carried forward from a previous income year).
The maximum offset (including current income year and carried forward prior year amounts) that you, and your affiliates combined, can claim in the current income year can't exceed $200,000.
R – Tax offset carried forward from a previous year
Write at item 23 – label R the amount of unused early stage investor tax offset carried forward from a previous year.
If you claimed the early stage investor tax offset in one or more earlier income years starting on or after 1 July 2016 and didn't 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.
Don't include an amount at label R if you are prevented from using the early stage investor tax offset from an earlier income year by Division 65 of the ITAA 1997. For example, Division 65 states that before you can apply a tax offset from a prior year to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income. If the company is a base rate entity for the year, net exempt income is reduced by $1 for each 25 cents of the tax offset; otherwise, net exempt income is reduced by $1 for each 30 cents of the tax offset.
If you have not previously claimed this early stage investor tax offset, or you did not have any unused early stage investor tax offset from one or more earlier income years commencing on or after 1 July 2016, you don't need to complete item 23 – label R.
Include this amount in your total in the Calculation statement at label D Non-refundable carry forward tax offsets.
Example 16: calculating early stage investor tax offset
Company XYZ has a carried forward early stage investor tax offset of $60,000 from 2022–23.
In 2023–24, Company XYZ invested $500,000 in eligible shares in one early stage innovation company, and $250,000 in another early stage innovation company. Company XYZ meets the requirements of the sophisticated investor test.
Company XYZ has gross tax of $180,000 at label B, no amounts at label C (non-refundable non-carry forward offsets) and no exempt income.
The amount that Company XYZ writes at label R is $60,000 (carried forward early stage investor tax offset from 2022–23). It calculates the amount reported at label M as:
Step 1: The total amount paid for eligible shares in early stage innovation companies 2023–24 = $750,000.
Step 2: Multiply step 1 amount ($750,000) by 20% = $150,000.
Step 3: Nil – Company XYZ has no other early stage investor entitlements via trusts or partnerships.
Step 4: Company XYZ adds the amounts from steps 2 and 3. The result is $150,000.
Step 5: Company XYZ subtracts the amount at label R, $60,000, from $200,000. The result is $140,000.
Step 6: As the step 4 amount ($150,000) is greater than the step 5 amount ($140,000), Company XYZ writes $140,000 at label M.
Company XYZ can claim an early stage investor tax offset equal to the sum of the labels R and M amounts ($60,000 plus $140,000, totalling $200,000). Although the carried forward tax offset from 2021–22 of $60,000, and the current year tax offset of $150,000 (step 4 amount) equals $210,000, Company XYZ’s total tax offset is capped at $200,000 for 2023–24. The unused excess of $10,000 can't be carried forward to future income years.
As Company XYZ's entitlement to the tax offset ($200,000) is greater than its gross tax payable ($180,000), the unused portion of the offset ($20,000) may be carried forward to future income years (subject to the rules in Division 65).
End of exampleContinue to: 24 Digital games tax offset
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