Skip to content

Starting Up Your Startup: Startup Tax Incentives

As government-funded billboards remind you, we are in the innovation age, and it is a great time to think about starting up your startup. In December last year, the Government announced their startup tax incentives as part of the billion dollar innovation statement aimed at driving investment and economic growth to encourage innovation and Australia’s entrepreneurial culture. If passed, the Tax Laws Amendment Bill 2016 will apply from 1 July 2016. We unpack the Bill and its effects below.

What is Involved in the New Benefits?

The overarching aim of the Government’s new tax benefits is to promote entrepreneurship by helping early stage investors. The Government intends to address a funding gap between pre-concept stage financing and support financing through two new programs – Early Stage Venture Capital Limited Partnerships (ESVCLP) and the Venture Capital Limited Partnerships (VCLP). 

Who is Considered an Investor?

The ESVCLP and VCLP schemes are available to all investors except widely held companies and their affiliated subsidiaries.

The key benefits to investors include a tax offset of 20% of the value of investment subject to a maximum cap of $200,000. Investors that secure newly issued shares in innovative Australian companies can enjoy the tax offset. Furthermore, Investors may disregard capital gains acquired from investing in shares that have been held between one and ten years in an Australian Early Stage Innovation Company.

Continue reading this article below the form
Loading form

What Investments Qualify Under the Schemes?

Eligible investments under the scheme are shares or equity that a qualified, innovative company issues. The intention is to target new investors to drive startup growth and promote innovation. Convertible notes can be included under the schemes. Unfortunately, employees who are involved in an Employee Share Scheme will not benefit. However, there are relevant tax incentives available to Employees in such schemes.

What Startups Allow Investor Tax Incentives?

Broadly speaking, a company incorporated in Australia will qualify for the proposed tax incentive scheme. There are two stages of Startups allowing for the new investor tax benefits – early stage and innovation stage.

An early stage startup must satisfy the following criteria: 

  • Have been incorporated in Australia in the last three income years;
  • Not be listed on a stock exchange;
  • The company and any wholly-owned subsidiaries must not have an assessable income of more than $200,000 in the previous income year; and
  • The company and any wholly-owned subsidaries must not have incurred expenses more than $1,000,000 in the previous income year.

Innovation Stage

In order for a company to satisfy the innovation limb and qualify, the company’s activities must be characterised by development with a focus on commercialization. The below criteria must be met:

  • the company must qualify for a circumstance and objective based test in the application process where 100 points must be achieved; and
  • receive a ruling in favour of their circumstances by the commissioner.

The company must also have a focus on development with the genuine purpose of commercialisation and high growth. Qualifying startups will need to report to the Commissioner at the end of the financial year with investor information.

If passed, this Bill will significantly impact the startup sphere in Australia. If you need advise on growing and scaling your startup, including capital raising and trademark registration, get in touch with our startup lawyers or contact LegalVision’s taxation lawyers on 1300 544 755 or by filling out the form on this page.

Register for our free webinars

Demystifying M&A: What Every Business Owner Should Know

Online
Understand the essentials of mergers and acquisitions and protect your business value. Register for our free webinar.
Register Now

Social Media Compliance: Safeguard Your Brand and Avoid Common Pitfalls

Online
Avoid legal pitfalls in social media marketing and safeguard your brand. Register for our free webinar.
Register Now

Building a Strong Startup: Ask a Lawyer and Founder Your Tough Questions

Stone & Chalk Tech Central, Level 1 - 477 Pitt St Haymarket 2000
Join LegalVision and Bluebird at the Spark Festival to ask a lawyer and founder your startup questions. Register now.
Register Now

Construction Industry Update: What To Expect in 2026

Online
Stay ahead of major construction regulatory changes. Register for our free webinar.
Register Now
See more webinars >
Sophie Glover

Sophie Glover

Read all articles by Sophie

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards