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Tax Incentives for Investment in Innovation

Tax Incentives for Investment in Innovation, bolsters ESICs

Newsletter | April 2016

Please note – There have been many changes and updates to these programs over the past few years. We love legacy content, it shows a history, it shows that we have always cared about these programs and notifying our client base. For more up to date information, please check our News or get in contact with us.

PM Turnbull’s $1.1 billion National Innovation & Science Agenda moves forward, introducing legislation – Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 was initiated in the House of Representatives last week.

Excellent to see some real moves by the government to help promote a culture of innovation, risk-taking, and an entrepreneurship they have been advocating for Australia. The government hopes to “boost growth by fostering start-ups and promoting entrepreneurship… as critical to building a more innovative and agile economy”.

Tax incentives aimed explicitly at early stage investors proposed in this Bill are to:

  • encourage new investment in Australian early stage innovation companies (ESICs) that have high growth potential by providing investors, who invest in such companies, with a tax offset and a CGT exemption for their investments.
  • recommend a non-refundable tax offset of 20 per cent of the value of the investment for entities that acquire newly issued shares in an Australian early stage innovation company (ESIC) for entities that acquire newly issued shares in an Australian ESIC. Offsets are to be capped at $200,000 ($50,000 annually for retail investors).
  • means that investors may disregard capital gains realised on shares in qualifying ESIC’s that have been held for between one and ten years. Investors must disregard any capital losses realised on these shares held for less than ten years.

If passed, the amendments will apply in relation to shares issued on or after the later of 1 July 2016.

Qualification as Early Stage Innovation Company

The bill proposes that the investee ESIC must be an unlisted company which has been:

  1. Incorporated in Australia within the last three income years
  2. Incurred expenses of less than $1m in previous income year
  3. Had income (assessable for tax) of less than $200,000 in previous income year
  4. Is involved in innovative developments of “new or significantly improved type of innovation such as a product, process, service, marketing or organisational method” for commercialisation with scalability potential

Venture capital investment

The Bill also amends Venture Capital rules in existing legislation to improve access to venture capital investment and make the regimes more attractive to investors.

The amendments would provide an additional tax incentive for limited partners in new ESVCLPs (early stage venture capital limited partnerships), relax restrictions on ESVCLP investments and fund size and clarify the legal framework for both ESVCLPs and VCLPs (venture capital limited partnerships) and also Australian venture capital fund of funds and foreign venture capital fund of funds.

Date of effect: The amendments made by Schedule 2 will broadly apply on and after 1 July 2016.

Treasurer Scott Morrison released a joint press conference reiterating the Government’s economic plan to help drive innovation, investment, economic growth and jobs in our transitioning economy. Unfortunately this media release is no longer available.

– Government incentives for investment innovation, bolsters Early Stage Innovation Companies –

Ryan can assist with services such as:

  • Scope your potential to claim various grant programs
  • Assist with the preparation and lodgement of grant applications
  • Review or provide a health check on your internally prepared grant applications
  • Establish record-keeping practices as required under various grant programs
  • Provide prepayment loans against future cash refunds under the R&D Tax Incentive
  • Keeping industry informed on all new Government policy and grant initiatives

Don’t hesitate to give us a call.