Reading time: 3 minutes

On 7 December 2015, the Federal Government announced a National Innovation and Science Statement that included some important tax proposals aimed at encouraging innovation in Australia. In addition to increasing access to company losses and reforming employee share scheme requirements, there are also new tax incentives to encourage greater investment in early stage startups.

The upcoming changes will be based on the successful UK Seed Enterprise Investment Scheme. This scheme resulted in over $500 million in startup investment for almost 2,900 companies in its first two years. Prime Minister Malcolm Turnbull has said over 4,500 startups miss out on equity finance and additional funding every year. The new tax incentives for early stage investors will certainly be a major cornerstone of the Federal Government’s Innovation Statement in shaking up startups and innovation.

Startups must meet eligibility requirements, including:

  • Undertake an ‘eligible business’ (As defined by the Department of Industry, Innovation and Science in 2016); and
  • In the last three income years, have been incorporated; and
  • Not be listed; and
  • Have an expenditure of less than $1 million and income of less than $200,000 in the previous income year.

The investment can be direct or indirect (via an investment fund). For any investors that claim non-refundable offsets, the tax offset will be available once the funds are committed and subscribed by the startup.

Eligible investors in early stage growth startups will be entitled to:

  • A 20% non-refundable tax offset about the investment, up to $200,000 per year per investor; and
  • A ten-year exemption from capital gains tax (CGT) for investments held for a minimum of three years. After ten years, any subsequent gain will be subject to CGT. However, a market value cost base will be inherited at that time.

Changes to Early Stage Venture Capital Limited Partnerships

There will also be some new incentives for Early Stage Venture Capital Limited Partnerships (ESVCLPs). Currently, there are approximately 25 ESVCLPs in Australia. These proposed changes will help attract more investment for Australia’s potential startups. There will also be changes in relaxing the eligibility and investment requirements for ESVCLPs and venture capital limited partnerships. Such changes include:

  • A 10% non-refundable tax offset for capital invested by partners in new ESVCLPs;
  • Increasing the permitted cap fund size on committed capital from $100 million to $200 million for new ESVCLPs; and
  • Removing the requirement that ESVCLPs divest of an investment once their investment value exceeds $250 million.

Plan Ahead

These upcoming tax incentives are expected to take effect 1 July 2016. Most importantly, the incentives only apply if the startup was created less than three years before the investment. For startups that have not incorporated and are reaching the three-year mark, a strategic decision to hold off on capital raising will incentivise investors with tax breaks. Avoid putting early stage investors in the position of choosing to invest without tax breaks. We will continue to cover the full impact of the innovation statement amendments as they are announced over the next coming months.

If you have any questions about the implications of the new regime, contact LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Anthony Lieu
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards