Australian Startup R&D Tax Relief
- GST tax relief (other than current 50%)
- R&D tax concessions for startups
- –Federal Government’s incentive for early stage investment. 20% tax offset and modified capital gains if you sell shares before 10 years. Investments are capped at $50k and $200k per year for sophisticated and non-sophisticated investors respectively. I believe this tax incentive is under utilised by startups. Qualifying shares held for 12 months or more but less than ten years You can disregard a capital gain that you make from a CGT event happening to qualifying shares if you have held them continuously for 12 months or more but less than ten years.
- ESIC incentives have been the additional sweetener for our investors (ensuring the company you invest in is formally an ESIC in ATO’s eyes).
- Early Stage Venture Capital Limited Partnerships (ESVCLPs)
- -Immediate deduction for certain capital expenditure such as professional/legal fees incurred in setting up a start up, ordinarily these would need to be added to the cost base of an asset or amortised over 5 years
- – There is a startup concession in respect to employees being able to reduce the taxable income to their employee share scheme interest to nil. ESS interests must be in a startup company which is an Australian resident for tax purposes. Additionally If the ESS interest is a share the discount must be no more than 15% of its market value when provided, and generally the scheme is operated so the employee must hold the ESS interests for a minimum of 3 years or until they cease employment.
- – There is a tax incentive for investors in early stage innovation companies (which is defined) which provides a 20% non-refundable carry forward tax offset. This is capped at $200k per income year. Another tax incentive for an early stage investor includes ability to disregard CGT gain on qualifying shares if held more than 12 months (but less than 10 years). For both of these the investor needs to satisfy the sophistaced investor test (corporations act). Failing this, tax incentives only available for total investments <$50k.
- -R&D tax incentives: for companies with turnover over < $20mil a refundable tax offset of 43.5%. If > $20 mil non-refundable. Requirements at a minimum; need to be an incorporated company, conducting elgiable core R&D activities, having incurred eligible R&D expenditure or notional dedication of $20k unless using a research service provider.
- – there are certain QLD government grants available where they will match private investment dollar for dollar (e.g business development fund) between 125k and 2.5m
- – Other grants are available to startups by the QLD government usually up to a few hundred thousand such as ignite
- 1) Employee Share Schemes – potentially tax free ‘discounts’ on issue of share / option plans in certain circumstances and tax free capital gains.
- 2)R & D Tax Incentive – a 43.5% ‘refundable tax incentive’ for every $1 spent on R & D (subject to minimum spend of $20,000.
- 3)20% tax offset for investments in Early Stage Innovation Companies plus tax free capital gains on sale of the shares
- 4)10% tax offset for investments in To investments in Early Stage Venture Capital Limited Partnerships
- 5) Various State and Federal Government Grants to assist start-ups with their business