Investing in Innovation
How angel investors benefit from the innovation tax offset

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New tax incentives can help your Early Stage Innovation Company attract startup funding.
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Investing in Innovation attracts new tax concessions

Australians are being encouraged to invest in innovation through the Government’s “Tax Incentives for Innovation” program.

With companies like Xero, Campaign Monitor and Canva generating impressive returns for investors, investing in start ups can certainly have its rewards. But there are also risks, with many startups failing to proceed beyond the “minimum viable product” phase.

Now, with the incentive of a 20 per cent tax offset and capital gains tax exemption on investments in innovative startups, it’s likely that more investors will be looking for investment opportunities.

Investing in innovation – accessing the tax incentives

How the tax offset works

  • Investors can claim a tax offset equal to 20% of the value of their investments in an early stage innovation company (ESIC) up to $200,000.
  • Investments held continuously for 12 months and less than 10 years are also exempt from capital gains tax.

However, if you invest more than $50,000 in ESICs over the financial year, you need to meet the 'sophisticated investor' test under the Corporations Act 2001 to claim any of the incentives.1

There are other rules such as maximum shareholding (30%), affiliated companies and employee share schemes that can also make investments ineligible, and these are outlined on the ATO’s website.

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How do I become a sophisticated investor

To be considered a sophisticated investor you need to be certified by a qualified accountant as having:

  • earned an income of $250,000 or more per annum for the last two years or
  • net assets of at least $2.5 million.

You can manage this certification process online using Cygura.

Cygura enables you to be certified by your accountant in minutes, and provides an online portal where you can share and manage your certificate in real time. Importantly, there’s no charge to create, store or share your certificate.

Learn more about Cygura

Maximising your return when investing in innovation

Startups are often higher risk investments so it’s important to make sure you’re eligible for any incentives that are available to you.

Before you invest, arrange to be certified by your accountant. That way, if you choose to invest $50,000 or more in eligible ESICs over the financial year, you’ll still be able to claim the tax offset and GST exemption, which helps to maximise your investment return.

Remember you may need to hold onto your certificate for up to 15 years to claim the CGT exemption.

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Create your certificate free

You can find out more about investing in innovation at the Australian Government’s National Innovation and Science Agenda website or the Australian Tax Office, Tax incentives for early stage investors.

1 Source: The Australian Tax Office, Tax incentives for early stage investors

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