New angel investor tax break

New Angel Investor Tax Break

Gerorgia King-Siem, R&D Tax Specialist, highlights the issues that require further clarification following the release of the new angel investor tax break.

Director, Tax

KPMG Australia


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Angel Statue

The Australian Tax Office (ATO) has released further information on the new angel investor tax break that came into effect on 1 July 2016. Under the new tax break, angel investors can receive a 20 percent tax rebate and capital gains tax (CGT) exemption (for the first 10 years) when they invest in a company that qualifies as an early stage innovation company (ESIC).

To qualify as an ESIC, a company must assess itself against a number of criteria, as set out in Division 360 of the Income Tax Assessment Act 1997. In brief, Division 360 contains a two limb test: an early stage limb and an innovation limb, which allow companies to self-assess against either a principles based test or a 100 point test. Both the principles based test and the 100 point test have strong ties to Division 355 which contains the R&D Tax Incentive.

The ATO’s new release sets out guidance material and information to be included in the ESIC report. (The ATO proposes that a company submit an ESIC report shortly after the end of an income year in which it has issued shares that it believes will qualify investors for the new tax break).

While the policy intent behind the new rules is clear, there are many issues that still require clarification. Some examples include:

Qualification as an ESIC

  • How should companies assess and demonstrate meeting either the principles based test or the 100-point test?
  • What impact do other tax provisions have on assessing the early stage limb requirements such as assessable income and total expenditure in prior years? 
  • What accelerator programs qualify under the 100 point test?
    Can companies obtain a ruling or certification from the ATO and, if so, what will be involved?

Qualifying as an Investor

  • How should an investor assess whether an investment is an ESIC?
  • How is the tax offset cap applied across income years and across affiliates?
  • What is the interaction with other structures such as partnerships and trusts?

KPMG is working with the ATO to resolve these questions and we will provide further information when these issues become clearer.

For further information, please contact us.

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