Investors in innovative companies will receive a tax offset. The ATO has greater scope to view financial data in overseas bank accounts. And foreign investors in NSW residential property face additional costs. We explore these pressing issues in the new financial year of 2016, and offer the option of an external audit to best approach them.
Is now the time to invest in a start-up?
Investors in innovative companies will receive a tax offset. The ATO has greater scope to view financial data in overseas bank accounts. And foreign investors in NSW residential property face additional costs.
Schedule 1 and 2
There are two main changes under the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 which passed on the 5th of May 2016.
Schedule 1 – Sophisticated Investors in qualifying early stage innovation companies can obtain:
- An innovation tax offset of 20% of the amount paid for shares – capped at $200,000 per year.
- CGT exemption on disposal of shares held for more than 12 months but less than 10 years
- Deemed market value cost base for shares held for 10 years or more
Schedule 2 – the existing early stage venture capital limited partnership (ESVCLP) and venture capital limited partnership (VCLP) is improved by:
- A non-refundable carry-forward tax offset for investors of up to 10% of the capital invested through an ESVCLP
- An increase in the maximum fund size for new and existing ESVCLP’s from $100 million to $200 million
Essentially, these new laws offer significant financial incentives to invest in a start-up company that classifies as an Early Stage Innovation Companies (ESIC).
If you qualify as a Sophisticated Investor, you can obtain up to $200,000 as a tax offset per year if you purchase shares in an ESIC. Moreover, if you have already invested in such a company then there are Capital Gains Tax exemptions of up to $10 million when you sell your shares, and the ability to obtain the deemed market value cost for shares held 10 years or more. There are also new provisions that benefit partnerships. These apply to investments made after 1 July 2016.
Start-up companies need to meet particular criteria to qualify as an ESIC. Generally, an Australian-incorporated company will qualify if, firstly, it is at an early stage of its development, and secondly if it is developing new or significantly improved innovations with the purpose of commercialisation to generate an economic return. There are four tests that need to be applied for each criterion.
These incentives should be considered as part of any plans that you may have to invest in a business, particularly if you are a Sophisticated Investor. A Sophisticated Investor is defined as a person who either has a gross income of at least $250,000 per year in each of the last two previous years, or controls net assets of at least $2.5 million.
As mentioned these tax offsets should be taken into account prior to making a decision to invest in a business. An external audit can help clarify whether your operations and structure have the financial and accounting strength needed to take such a step. Further clarification should be sought from us regarding whether you or the business you are investing in will qualify.
Increased ATO powers to obtain foreign bank account information
Many Australian residents have funds in foreign bank accounts. Likewise, many foreigners hold bank accounts with financial institutions in Australia. If you fall into either category, you need to be aware of changes that may allow the ATO to view and share your financial data.
Previously, there were limits to the ATO accessing the financial and banking information of foreign nations who held accounts in Australia. Likewise, the ATO was limited in its ability to access the accounts held by Australians overseas.
But new Common Reporting Standard (CRS) has changed all this.
Now, if you are a foreigner who has an account with an Australian financial institution, they are required to send your financial data to the ATO. The ATO will then pass on your banking data to tax authorities in your home country. Likewise, if you are an Australian resident with money in a bank account overseas, the tax authorities in that country will send data from your bank account to the ATO.
This CRS came into effect on 1 July 2016.
This means it is all the more important for you to revisit the funds that are coming in and out of your bank accounts and reconsider whether those have been disclosed as income and expenses for tax purposes. With the greater transparency in regards to bank accounts, the ATO have will have increased opportunities to initiate audits and investigations of taxpayer affairs.
Taxpayer’s should have clear plans regarding where their income is being deposited and have clear explanations regarding funds going into and out of foreign accounts. Calibre has had experience with these processes as well as managing ATO audits and investigations, while we also provide a comprehensive external audit service that can help you best assess the bookkeeping, accounting structures, and finances of your business.
NSW Government to increase tax costs for Foreigners owning property
The recent NSW State Budget has introduced measures that effectively make it tougher for foreigners to buy NSW residential properties.
NSW Treasurer Gladys Berejiklian announced surcharges on stamp duty and land tax for foreigners who invest in houses and apartments in NSW.
The Treasurer expects that these measures will raise more than $1 billion over four years and will fund essential services across NSW. “These new measures will ensure NSW’s property market continues to be an attractive destination for international investors while making sure that we are able to fund vital services into the future,” Ms Berejiklian said.
The stamp duty charge on foreign purchases of residential resident will stand at 4%. This commenced from 21 June 2016. A 0.75% land tax surcharge on residential real estate owned by foreign persons commences in the 2017 land tax year.
These measures follow the 3% surcharge for foreign investors initially introduced in Victoria, which is now being increased to 7%.
For example
Sarah is a Hong Kong national who currently owns a block of units in Artarmon. She is planning to purchase an apartment in Strathfield in July.
The block of units she owns in Artarmon has land valued at $2,000,000. The apartment she wishes to buy in Strathfield will cost $800,000. This means that in addition to the usual costs, she will need to pay $32,000 stamp-duty on the apartment. She will also need to pay a land tax surcharge of $15,000 for the Artarmon block of units from the 2017 land tax year.
So, if you are a foreigner looking to buy residential property in NSW, this means the cost of your investment is likely to increase. Moreover, if you already own property in NSW that has land worth over $482,000, then as a foreigner you will soon be paying the land tax surcharge. There will be no tax-free threshold for this land tax surcharge, and you will no longer be able to defer payment of stamp duty for off-the-plan purchases of residential property for 12-months.
It is important to prepare for this and weigh up your property investment options in the light of these new charges. It is also wise to consider how this might affect the costs of your existing residential property in NSW.
Contact your Calibre Advisor to ensure that you are financially prepared for these increased costs on your NSW property purchase.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.