Startup Tax Incentives – A Comprehensive Guide

In the last decade, Australia has had an exponential rise in the start-up sectors. An underlying aim of the Australian government’s new tax benefits is to encourage and promote entrepreneurship by assisting investors.

The government intends to address a funding gap issue between pre-concept stage investment and support finance. Therefore, the government has started two new programs:

• Early Stage Venture Capital Limited Partnerships (ESVCLP)
• Venture Capital Limited Partnerships (VCLP)

According to the government’s tax incentive programs, the ESVCLP and VCLP schemes are available for all investors except for the widely held companies and its affiliated subsidiaries.

One of the significant benefits of this new tax incentive includes a 20% tax offset of the value of investment subject to a maximum cap of $200,000. Investors with newly issued shares in Australian startups can enjoy this tax offset.

Additionally, investors can disregard the capital gains acquired from investing in shares that have been held for 1-10 years in an Australian start-up.

Startups that Allow Investor Tax Incentives

Essentially, a company incorporated and registered in Australia qualifies for the proposed tax incentive scheme. There are two different stages of startups that allows for the new investor tax benefits – early stage and innovation stage.

Early Stage

An early stage startup must suffice the following criteria:

• Should be incorporated in Australia for at least three income years
• Should not be listed on a stock exchange
• The company or its subsidiaries must not have a taxable income of more than $200,000 in the previous income year
• Also, the expenditure of a company or its subsidiaries must not exceed $1,000,000 in the previous income year

Innovation Stage

For a company to qualify for this stage, it is imperative that the activities are characterised by development with a prime focus on commercialisation.

Additionally, the below criteria must be met:

• The company must qualify for a situation and objective based test in the application process, where 100 points must be achieved.
• Receive order in favour of their circumstances by the commissioner.

Moreover, the company must also focus on development with the authentic purpose of commercialisation and high growth.

For assistance with getting your business started, tax consultation and other financial advice, contact our team at Zimsen Partners.