Incentives for Investing in Startups


May 12, 2016


The Federal Government recently announced a raft of new initiatives under their “National Innovation and Science Agenda” which you may have seen advertised on television.  One of these initiatives was incentives for anyone who invested new equity capital in an eligible startup business.

The purpose of this incentive is to encourage more people to invest equity capital into these start-up businesses.  The main points from the new initiative are:

The government is providing an incentive to eligible investors in eligible companies which comprises:

  • A 20% non-refundable carry forward tax offset on amounts invested capped at $200kpa per investor
  • A 10 year exemption on capital gains for investments held for at least 12 months and where shareholders hold less than 30% of the company

An eligible investors is a person who:

  • Invests in a qualifying eligible company
  • Is not a widely held company (i.e. listed or >50 members)
  • A sophisticated investor
  • A non-sophisticated investor that has invested $50k or less in any one year

A qualifying company (investee) is one that:

  • Has expenditure <$1m in the prior income year
  • Has assessable income <$200k in prior year income
  • Is not listed
  • Was incorporated in Australia within the last 3 years
  • Is involved in innovation by one of 3 tests


A couple of other points:

  • The incentives will be available to members of a partnership or trust (but not a company) that invests
  • The bill has now received royal assent so will come into effect from 1 July 2016.
  • The incentive is based on the date the shares are actually issued to the investor
  • The incentive is not available to associates of the company.

For example

If John, an investor, invests $25,000 into an eligible company and receives new shares for his investment then he will be able to claim a $5,000 tax credit in that income year.  If the business is then sold within the next 10 years then the capital gain will be tax free.

So what does this mean for the start-up community?

Over the last 3-5 years we have seen on the Sunshine Coast a number of new businesses get started with the help of the Innovation Centre at the University of the Sunshine Coast and now Spark Bureau in Maroochydore plus several other local co-working spaces designed to help fledging businesses.

During that time the Poole Group have also been able to help match angel investors with potential investment opportunities with several companies being successful in receiving investment from local investors who have co-invested amounts from $10,000 to $50,000 in some of these projects.  Many companies seek investment in parcels of $20-25,000.

We don’t make any recommendations as to the companies viability or investment quality  but they are ones who have been involved with the likes of the Innovation Centre or Spark Bureau and therefore have been through a structured approach in setting up their business model.  Potential investors can then make up their own minds as to whether or not these businesses are something they may be interested in being involved with.

The new initiative from the government means that if an angel investor does make an investment then they will receive the tax benefits outlined above, thereby making the investment more attractive given the risks inherent with startup investments.

The bottom line is that with more investment in these fledging businesses we can help support, grow and retain some of the great ideas and opportunities these businesses generate here on the Coast rather than seeing them leave to generate employment and wealth in other areas.

If you would be interested in seeing what opportunities exist in the region then drop me a line to be included in our mailing list of angel investors. But remember a tax incentive in itself doesn’t form the basis of a good investment. The underlying business model and management will determine if it is something that appeals to your investment profile and this decision is entirely up to you.

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