UNCLASSIFIED / CA2018-015Tax incentive for investors in Early Stage Inovation Companies / Change
advice
business / SOFTWARE DEVELOPERS / advice / UNCLASSIFIED
Segment / audience / Format / Classification
CHANGE Advice
Reference No: / 2018-015 (see related Change Advice 2018-016)
Title: / Tax incentive for investors in Early Stage Inovation Companies
Version No: / 3.0
THIS Document Date: / 9/11/2017
CHANGE IMPLEMENTATION DATE / 1/07/2018
TAX MEASURE COMMENCEMENT DATE / 1/07/2016
CURRENT STAGE
(as at this document date) / CONCEPTUAL
HIGH LEVELDESIGN
REQUIREMENTS ANALYSIS
DETAILED DESIGN
LIKELIHOOD
(check one as at this document date) / UNLIKELY (proposed)
LIKELY
DEFINITE
(SIPO Use only)
Channels affectedExternal Tax Software products affected
ELS Fringe Benefits Tax (FBT)
SBR Resource Rent Tax (RRT)
ECI Income tax
eSAT Business Accounting systems
Portal Superannuation Systems
Prefill data Payroll systems
Calculators Corporate enterprise systems ( e.g. finance/ HR)
Paper Forms
Outbound Correspondence
IMPORTANT. Information in this advice is draft only and subject to change. It is provided under the terms and conditions of the ATO Software Developers Homepage( ) and noted in the footer below
DEPENDANT LEGISLATION
The Tax Laws Amendment (Tax Incentives for Innovation) Act 2016
Treasury Laws Amendment (2017 Measures No. 1) Act 2017
The legislation applies to newly issued shares acquired on or after 1 July 2016.
BACKGROUND INFORMATION/POLICY INTENT
On 7 December 2015, the Government announced the National Innovation and Science Agenda (NISA), including new tax incentives for early stage investors. The tax incentives provide concessional tax treatment for investments made in a range of innovative start-up companies with high growth potential.
The changes provide investors that acquire newly issued shares in a qualifying Australian early stage innovation company (ESIC) with:
  • a non-refundable carry-forward tax offset equal to 20% of the amount paid for their investment, subject to a maximum cap of $200,000 per year for the investor and their affiliates combined (inclusive of current year and carried forward tax offset amount). A separate investment cap also applies to retail (non-sophisticated)investors.
  • a modified CGT treatment for qualifying shares, including an exemption for capital gains on shares continuously held for between one and ten years. Any capital losses on shares held for less than ten years must be disregarded. This CGT treatment applies to shares that would have qualified for the tax offset if the maximum cap had not been exceeded, so that an investor is able to disregard capital gains on investments exceeding $1 million.
  • An ESIC that issues shares that may give rise to an entitlement to the offset during a financial year must report information about their investors to the Commissioner on an approved form, which is due 31 days after the end of the financial year.
Note: A related change advice CA2018-016 covers changes for Tax Incentives for early stage venture capital limited partnerships (ESVCLPs)
BUSINESS REQUIREMENTS SUMMARY
Investors (or the partner, or the beneficiary or trustee in certain cases), where the investor is a partnership or trust) will be able to claim a non-refundable carry-forward tax offset, equal to 20% of the amount paid for their qualifying investment in newly issued shares in a qualifying ESIC. The tax offset is capped at a maximum of $200,000 for an investor and their affiliates combined in each year (inclusive of current year and carried forward amounts). For a retail (non-sophisticated) investor, the tax offset is effectively capped at $10,000.
In tax time 2017, processes were built to allow the initial claim of the off set, in tax time 2018 we will:
  • Include tax offsets carried forward from the previous year and enable pre-population of carried forward amounts where appropriate.
  • Allow investors to apply a modified capital gains tax treatment when a CGT event occurs in relation to qualifying shares.
  • Enable pre-fil of the tax offset based on information received in the ESIC report.
To make the changes necessary to support:
Part / Description
Taxpayers recording the use of the CGT exemption on their income tax returns (by adding a code to the existing CGT exemption/roll-over code box, and allowing more than one code to be selected by taxpayers).
Enable pre-fil of the early stage investor tax offset from information received via the ESIC Report.
The recording of the amount of early stage investor tax offset carried forward from the previous year. The offset carried forward from the prior year will be prefilled in the following year’s return.
Impacted Tax Clients
Individuals
Companies
Trusts
Superfunds
Self managed Superfunds
CONCEPTUAL VIEW (Draft High Level Design)
Individuals
  • A new label for the tax offset carried forward from previous year
  • Corresponding updates to calculations and edits
  • Update to the check on the $200,000 cap to include the tax offset carried forward
  • Prefill from the ESIC report as information only
  • Add a new CGT exemption code
Company
  • A new label for the tax offset carried forward from previous year
  • Corresponding updates to calculations and edits
  • Update to the check on the $200,000 cap to include the carried forward amount
  • Add a new CGT exemption code
Fund and SMSF
  • Two new labels, one for tax offset and one for tax offset carried forward from previous year
  • The field D2 (Item 10 in Fund and Item 11 in SMSF) built in 2017 will be ESVCLP
  • Corresponding updates to calculations and edits
  • Update the the check on the $200,000 cap to include the tax offset carried forward
  • Add a new CGT exemption code
Trusts
  • Replace/repurpose the generic non-refundable carry forward tax offset fields built in 2017 to separate the offsets
  • At item 52, new label for the current year Early stage investor tax offset
  • At item 55 beneficiary 1,2,3…, new label for the current year Early stage investortax offset
  • At item 55 beneficiary ‘income to which no beneficiary presently entitled…’, new label for current year Early stage investor tax offset and new label for Early stage investor tax offset carried forward from previous year
  • Corresponding updates to calculations and edits
  • Update to the check on the $200,000 cap to include the trustee’s tax offset carried forward
  • Add a new CGT exemption code
  • Enable attachment of additional information for trustee to direct the application of the offsetswhere it has more than one assessment for the year

DETAILED DESIGN
Not yet completed
Names of Forms impacted:
Individual Income Tax Return
Company Tax Return
Fund Income Tax Return
SMSF Annual Return
Trust Tax Return
UNCLASSIFIED / This A controlled information resource WHICH is information that is not yet available to the general public, IT is made available to software developers for the sole purpose of assisting in the development of tax-related software (both commercial and in-house).
In some cases the information is in draft form or has been made available for the purposes of consultation, proof of concept work and or pilots.
HOLDERS OF THIS DOCUMENT should not on-forward controlled information to persons or organisations outside THEIR own organisation OR FOR OTHER PURPOSES. See / PAGE
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