Expats looking to plough cash in to start-up businesses in Australia will soon benefit from generous tax breaks.
The government in Canberra has announced a draft bill for the Australian version of the UK’s Seed Enterprise Investment Scheme (SEIS).
One of the key points is tax residence does not stop expats investing in a new Australian start-up business – but they will need to pay tax in the country to take advantage of the scheme.
The Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 (Bill) is based on British SEIS rules.
The measure is aimed at encouraging investors to help entrepreneurs raise cash to get their new businesses of the ground.
Australia ESICS tax breaks
Like the UK banks in Australia are reticent to lend to start-ups as they have no trading history or assets to secure borrowing against and present too high a risk for loans.
SEIS in the UK has raised more than £255 million for nearly 3,000 start-ups since April 2012, according to the latest figures issued by HM Revenue and Customs (HMRC) covering until the end of the 2013-14 tax year.
This success has prompted the Australian copy-cat rules.
The Australian SEIS rules offers a 20% tax offset on a maximum investment of AUS$1 million each year.
Investors who hold their start-up company shares for between one and 10 years are exempt from capital gains tax on any gains in the value of their holdings.
Investments can be made by individuals, companies and partnerships – but tax residency in Australia is not needed.
Rules for investors and start-ups
The draft bill also makes a number of stipulations about investors and companies that qualify for Australia SEIS tax breaks.
The rules apply to Early Stage Innovation Companies (ESICs) in Australia, which are start-ups less than three years old, are unlisted on a stock exchange and meet spending and expense qualifications.
Investors cannot hold more than 30% of the shares in a company and have some restrictions on their relationship with the business.
For instance, director owners cannot claim the tax offset for investing in their own business and shares gained from an employee share scheme are also outside of ESIC rules.
The draft is expected to pass into law on July 1, 2016.
