The full effect of the opportunities for small/medium enterprises to raise capital will be evident to accountants as we approach the commencement of Crowd-Sourced Funding Equity Raising which commences on 29th September 2017.
Over the last eighteen months, two new types of capital raising entities have been introduced to Australia namely:
- Early Stage Innovation Companies
- Crowd-Sourced Funding Companies
These new type of companies give small/medium enterprises a variety of opportunities to raise capital and at the same time offer potential retail investors the opportunity to invest in a class of company that was difficult for retail investors to invest in previously and in some instances offers investors income tax rebates based on their investment and a potential Capital Gains Tax exemption.
The Early Stage Innovation Companies are targeted at young businesses that have developed new or enhanced technologies, products or services, whilst Crowd-Sourced Funding Companies are targeted at companies with activities in any type of business irrespective of the age of the company.
The following chart gives you a quick overview comparison of Early Stage Innovation Companies with Crowd-Sourced Funding Companies:
Comparison
| ESIC | CSF | |
| Maximum expenditure last year | $1M | No limit |
| Maximum income last year | $200K | $25M |
| Not listed on a Stock Exchange | √ | √ |
| Age of company important | √ | Not important |
| Business activity important | √ | Not important |
| Maximum investment – Retail Investor every 12 months | $50K | $10K |
| Tax Offsets on Investment | 20% | N/A |
| · Retail Investor – maximum | $10K | N/A |
| · Sophisticated Investor – maximum | $200K | N/A |
| Capital Gains Tax possible exemption | √ | N/A |
| Capital raising limit ever 12 months | N/A | √ |
| Amount | N/A | $5M |
| Eligibility decision maker | AusIndustry/ATO | Intermediary (Has Australian Financial Services Industry Licence) |
| Type of company | Pty Ltd | Unlisted Public Company |
| Auditor appointment first five years | N/A | √ (if raised over $1M) |
| Number of directors | 1 | 3 |
| Formal process for capital raising | N/A | √ |
| Special reporting to ATO | √ (by 31st July) | N/A |
| Capital raising opportunities | √ (Started July 2016) | √ (from 29.09.17) |
Crowd Sourced Funding Capital Raising can commence from 29 September 2017. Now is a good time to start talking to clients – especially clients who are wanting to expand or grow their businesses and for clients who have large amounts of loans and/or credit card debts and personal borrowings.
These businesses may be interested in qualifying as a Crowd-Sourced Funding Company and then attempting to raise capital through Crowd-Sourced Funding so they can pay out the loans and credit card debts.
If the company is under three years old and has developed new products processes or services that company could be eligible to be deemed an Early Stage Innovation Company and as such could be very attractive to potential investors because of the tax rebates that are available to investors to invest in these types of companies and the potential Capital Gains Tax Exemption that is available on that investment. The opportunity to invest in Early Stage Innovation Companies has been available since July 2016.
Peter Towers | ESS BIZTOOLS
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