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The 100 point innovation test requirements

The 100 point innovation test requirements

When your company issues shares you have to qualify as an ESIC® for your shares to be eligible for the incentives. There are certain tests which can determine whether you qualify as an ESIC®. These tests are primarily dependent upon the expenses of the company and the shares held by the investors. The company has to earn 100 points from various factors as an overall conclusion and then it can be successfully certified as an ESIC®. There are some very important points carrying 75 points, some carry 50 points and the rest carry 25 points. There are in all 8 points which need to be thoroughly checked. Altogether, these points should reach the target of 100 points which enable the company to get the tax incentives entitled to an early stage investment in an ESIC® company.  If you want to easily understand the ESIC® eligibility, please spend 5 minutes completing our ESIC Predictor.

The major points in the test

The ESIC ® legislation carries 75 points where

At least 50 % of the expenses of previous income year are an eligible notional deduction for the R&D tax incentive.

The company has received an accelerating commercialization grant.

Those carrying a 50 point value are

A notional R&D tax deduction of at least 15% but less than 50% of total expenses.

The company has participated in an eligible accelerator program for entrepreneurs based on competitive selection criteria.

Subject to certain conditions and laws, one or more third party should have paid $ 50,000 for the issue of new shares.

The company must have a standard patent or a plant breeder’s right granted in Australia in the last five years or an intellectual property right granted in another country.

The final section with 25 points each are

If the above 50 points are not available to a company due to certain circumstances with a standard patent or a design right, instead of plant breeder’s right, it gets 25 points in this section.

If the company has an already written agreement with an approved research institution to co-develop and commercialise an innovation.

The checklist has to be thoroughly studied to identify the points that are applicable and it can be used to determine whether the company qualifies as an ESIC ®. For most of the new found companies, these conditions are applicable and they are easily identified as an ESIC®. This makes them eligible for tax incentives when shares are issued. The company should qualify at the test time, which is immediately after the issue of shares. It is the responsibility of the investor to determine whether the company qualifies as an ESIC® at the test time.

When the investor makes the decision

For an ESIC ® company, the investors are a major party. They are the ones who determine whether they will invest in their company. This helps them get tax incentives which in turn help their business. For most, the investors need not be businessmen as they can be also friends and family. This makes it a very good option as the investment can be more personal than public. For all these benefits the company has to necessarily pass the 100 point test and qualify to be ESIC® certified.

If your early stage investment meets our ESIC® certified standard, you may be eligible for a 20% tax rebate and gains made on the sale of the shares will be tax-free (no CGT) if held for between 1 and 10 years.

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The ESIC predictor can be found on our website on both the ‘What are ESICs’ and ‘Early Stage Company’ pages.

You can also access our contribution here to The Tax Institute journal.

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