Some learnings based on a question put to the ATO forum; which reads
I invested in a company on 27/6 that qualified for ESIC in the 18/19 financial year. They lodge the application for ESIC for both the 18/19 and the 19/20 financial year on 31/7/20. To meet the ESIC requirements, they did the 100 point test and obtained 50 points from my investment (as a third party investor) would i still quality to claim for the ESIC tax incentive?
From the ATO website on ESIC, i know i can carry the tax offset forward. As i have already lodge the 2018/19 tax return, can i just start the tax offset for the 2019/20 tax year?
Also am i able break up the investment amount to a max 50k over a few years so i do not hv to meet the sophisticated investor requirement?
Our reply:
An investor will not qualify for the first independent 50k investment made because of the investment made*, however this does not rule out qualification, it just means we need to look to the principals based assessment for the company. It is not uncommon for companies to gain points qualification after a seed or pre-seed raise. More info about the principals method is here.
Generally speaking, if the company qualified at the time of the investment* (without the points attributed to your investment), and you also qualified at that time, you will able to claim the carry forward offset in a latter year (assuming you have tax to pay).
Keep in mind that if you invest 1 cent over 50k per annum (across all your investments) you will not be eligible for ESIC incentives unless you are an exempt 708 investor at the time. It is permissible for retail investors to make a series of investments in ESIC's or the same ESIC, provided the 50k cap is not exceeded in any given tax year.
You should contact the company and find out if they lodged ESIC notification each year with the ATO or if they acquired a Private Binding Ruling (PBR). Ultimately it is your responsibility to maintain proof your ESIC claim so I recommend you read up in detail and try to find a guide for record keeping.
Notes:
* this is a clear anti avoidance mechanism, outlined in the EM
* Investment on 27/6 could be a timing issue, if this was the last year, I'd recommend you consider the date of the investment (per the company register) and not the date you paid.
* Assumes ordinary shares (not convertible notes etc)