Tax incentive for angel investors in start-ups

For more than two years now (from 1 July 2016) two key tax incentives have been available for investors considering putting their money behind qualifying start-up businesses - or as the ATO has dubbed them, early stage innovation companies (ESICs).

The incentives provide eligible taxpayers who invest in new shares in an ESIC with:

(1) a non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for "sophisticated" investors and $50,000 for non-sophisticated investors (more below) each income year.

(2) modified CFT treatment. Under this incentive, capital gains on qualifying shares that are continuously held for between one and 10 years may be disregarded. However capital losses crystallised on share held for less than 10 years are also disregarded.

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