The Tax Laws Amendment (Tax Incentive for Innovation) Act 2016 for Early Stage Innovation Company (ESIC) commenced operation from 1st July 2016. Are you interested in finding out more details about the eligibility requirements for a company to be deemed an ESIC?
The key components relate to a number of tests that the company must be able to satisfy. These include the “preliminary test”, which relates to:
When was the company incorporated?
What was the company’s total expenses in the last income year?
What was the company’s total assessable income in the last income year?
Is the company listed on a stock exchange?
Further questions relating to whether the company is registered on the Australian Business Register (ABR).
If the company passes this “preliminary test”, the company is then required to pass a further series of tests known as the “Gateway Test”, which relates to particular items such as:
Research and Development expenditure.
Has the company received an Accelerating Commercialisation grant?
Has the company participated in an Accelerator Program?
Has the company received at least $50,000 from arms-length equity investors to acquire shares in the company?
Has the company’s equitable rights under a patent, plant breeder’s patent, innovation patent or a registered design?
Does the company have a written agreement within an institution registered under the Higher Education Funding Act or an entity registered under the Industry Research and Development Act, relative to the commercialisation of a process?
If the company can earn in excess of 100 points from these series of questions, it has qualified as an ESIC. Otherwise, the questions then move into a further section, which relates to the activities that have occurred relative to the commercialisation of new or improved products, processes, services, marketing or organisational methods.
There are five specific questions under this section. If you can answer each of these questions in a positive manner, the company will be in a position to self-assess as to its compliance with the regulations relating to an ESIC.
We have a program to assist us in identifying whether your company will meet the requirements to be deemed to be an ESIC.
Potential investors in companies claiming to be an ESIC will require confirmation that the company has carried out a series of tests to determine the company’s eligibility for the status of ESIC. This is very important for investors because a sophisticated investor can obtain up to $200,000 as a tax rebate based on the investment that has been made, whilst a retail investor can claim up to $10,000 tax rebate on maximum investment, which is $50,000. Investors can also utilise CGT exemption for investments in an ESIC from the end of year one of their investment up to the end of year 10 (a sophisticated investor is an investor with a net worth of $2.5M or minimum annual income of $250,000 for each of the last two years, with the information being verified by a practicing accountant).
If you would like have a discussion with us on whether your company will meet the requirements to be deemed to be an ESIC, please don’t hesitate to contact us.