An ESIC is an Early Stage Innovation Company. In order for a company to qualify as an ESIC through the principals based assessment system the company must have high growth potential, be able to scale, address a broader than local market, and have competitive advantages. Points based assessment does not require an additional objective assessment of the early stage company’s innovation, and instead relies upon independent assessment via government, commercial or other established measure.
It can be argued that points based ESIC’s are not subject to the same level of assessment as principals based assessment undertaken by the ATO in a private ruling, however the opposite can also be asserted (saying that the commercial hurdles are better). Such assessment must be made by the investor, and in either event, a correctly classified ESIC is able to offer the tax concession to eligible investors.
In 2015 the Australian government passed legislation that provides tax incentives for investments in ESICs. Investments in ESICs may be eligible for a 20% tax offset, and gains on the sale of an ESIC investment may be CGT free if shares are held for between 1 to 10 years.
As a business, ESIC status in isolation, makes a company more attractive for investment. It is a way you can let investors know you are a promising new company. Take our ESIC Pre-Assessment here to see if you are likely to qualify as an ESIC.
What is innovation and why is tax being used to promote it?
Innovation is what's new and innovation is what is new. The trouble is that making something new is hard and risky, and finding capital for risky ventures is getting harder, so the Australian government has acted assertively to bridge the gap and connect funds with promising ventures earlier than before, with some help from a generous tax incentive (ESIC).
ESIC is designed to help founders get funded, though does not apply to reduce any tax they may pay.
Equally, ESIC will not secure investment in its own right, as the main benefit is gained only on profitable sale of the companys' shares. ESIC's still need to be attractive investments in thier own right.
ESIC tests how innovative the company is, against the statutory criteria, our pre-assessment is a good rule of thumb;
Early Stage Companies Pre-assessment
This pre-assessment will help you explore if you are likely to eligibility for Eligible Early Stage Innovation Company incentives. We can check if a company that meets the Early Stage Test and either the 100 point Innovation Test or the Principles-based Innovation Test. Failing these tests, the company may request a taxation ruling from the Australian Tax Office.