Tax incentives for start-up investors

Tax incentives may be available to investors that are considering putting their money into qualifying start-up businesses. Eligible businesses are defined by the ATO as early-stage innovation companies (ESICs).

The two key tax incentives for eligible early-stage investors, also known as ‘angel investors’, who purchase new shares in an ESIC are:

• Non-refundable carry forward tax offset that is equal to 20% of the amount paid for their qualifying investments. This offset is capped at a maximum amount of $200,000 for the investor and their affiliates combined in each income year.
• Modified capital gains tax (CGT) treatment, where capital gains on qualifying shares that have been continuously held for at least one year may be disregarded. Capital losses on shares that have been held for less than ten years must be disregarded.

Note that the maximum tax offset of $200,000 does not limit the shares that qualify for the modified CGT treatment.

The early-stage investor tax incentives are available to both Australian resident and non-resident investors. To qualify for the tax incentives, investors must have purchased the shares in a company that meets the requirements of an ESIC immediately after the shares are issued. They must be issued on or after 1 July 2016.

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Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

• A child of the deceased who is under 18 years of age,
• A spouse or former spouse of the deceased,
• A person who has an interdependency relationship with the deceased (e.g. if they live together or have a close personal relationship),
• A financial dependant of the deceased.

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

• Withdraw it as a lump sum, or
• Receive an account based income stream.

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

• The deceased was at least 60 years of age at the time of death
• The dependent is over 60 years of age and the total of their tax-free component and taxed element exceeds their defined benefit income cap.

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

• The payment is made as a result of the SMSF member passing away,
• The payment is provided to a non-dependent for tax purposes,
• The payment has a taxable component.

Non-dependants must calculate how much money in the super account is a:

• Tax-free component,
• Taxable component the super provider has paid tax on (taxed element),
• Taxable component the super provider has not paid tax on (untaxed element).

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).

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