Jan 21, 20232 min read

Early Stage Innovation Company (ESIC) Benefits and What This Means for Investors

Woman and man in room collaborating — For approved companies the Early Stage Innovation Company scheme provides tremendous tax advantages.

The Early Stage Innovation Company (ESIC) is a government-approved status designed to encourage investment in early-stage innovation companies in Australia. To qualify as an ESIC, a company must meet specific criteria, including:

The company must be incorporated in Australia and have its central management and control in Australia.
The company must have total expenses of less than $1 million in the previous income year and a total income of less than $200,000 in the previous income year.
The company must be working on a new or significantly improved innovative product, service, or process yet to be available on the market.
At least 80% of the company's activities must be focused on developing and commercializing this new or improved product, service, or process.

Companies that meet these criteria can apply for ESIC status, providing several tax benefits for the company and its investors. These include:

A non-refundable carry forward tax offset of up to $200,000 for eligible investors who invest in an ESIC.
A capital gains tax (CGT) exemption for investors who hold their shares in the ESIC for more than 12 months.
A reduction in the CGT discount for investors who hold their shares in the ESIC for less than 12 months, from 50% to 30%.

There are also additional benefits for ESICs, such as:

Access to the R&D Tax Incentive program
Eligibility for the Accelerating Commercialisation Grant
Eligibility for the Entrepreneurs' Infrastructure Program.

It is important to note that compliance with the ESIC criteria must be maintained; otherwise, the company will lose its ESIC status and the associated tax benefits. Additionally, the company must notify the Australian Securities and Investments Commission (ASIC) if it no longer qualifies as an ESIC.

It's also important to mention that the above information is general, and you should consult a tax professional or financial advisor for advice on your specific situation.

For More Information

For more information for investors, please visit the Australian Tax Office (Early Stage Innovation Company) website.

About the Author

Adam Ryan is a Professor of Practice (Adjunct Professor) at Monash University and is a principal at Watkins Bay. Adam has over twenty years of start-up experience in Australia and the USA. An expert in Company Structuring for Innovation, Strategy, Mergers & Acquisitions, and Capital for early and growth-stage businesses.