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ESIC Reporting Obligations for Start-Ups

Source: Australian Taxation Office

Please be aware that Early Stage Innovation Companies (ESIC) are required to complete an Early Stage Innovation Company report if they issued new shares to one or more investors during the financial year which could lead to an investor being entitled to access the early-stage investor tax incentives. This information must be reported to the ATO 31 days into the following financial year (which is generally 31 July).

It is not the responsibility of an accountant or tax agent to complete this report. Clients are expected to do this report themselves or engage a company secretary for help.

What do you need to report?

For each investment that you receive during the year that may give rise to an investor accessing early-stage investor tax incentives, you should keep the following information to report to the ATO:

  • ABN, name, and address for the investor (plus the date of birth for investors that are individuals);
  • Number of new shares issued to the investor;
  • Amount paid for the new shares;
  • Date the shares were issued;
  • Percentage of shares in the company held by the investor immediately after the shares were issued.

When you submit the form, you declare that the company meets the requirements to be an ESIC for all reported investments. You will be asked to specify whether the 100-point innovation test or principles-based innovation test has been applied as well as whether you have received a ruling on your eligibility.

Submitting the form when you are aware that the company does not meet these requirements could result in penalties, including possible criminal penalties under the tax law.

The ATO will use this information to assess whether investors qualify for the tax incentives. Providing this information early on may help your investors demonstrate to the ATO that they are entitled to the early stage investor tax offset if they lodge their tax return early.

If you are aware that a particular investor is not entitled to access the early stage investor tax incentives, then you should not include that investor’s details on the form. For example, this will be the case if the investor is an affiliate of yours, or if the shares are provided through an employee share scheme.

How do you report?

Companies need to report this information electronically. The Early Stage Innovation Company report form is available in:

Online services for business – Log in and select Lodgments from the top menu then Reports and forms, or
Online services for agents –  Under Client forms in the left-hand menu.

Lodgment Tips:

  • Users must have the correct permissions set by their Administrator in Access Manager to view and lodge the form.
  • The report may timeout after five minutes of inactivity.
  • Do not use copy and paste.
  • If you continually get a system unavailable error message when attempting to lodge, email R&This email address is being protected from spambots. You need JavaScript enabled to view it. for assistance.
  • If you are an Online Services for Business user and cannot see the ESIC report in your online forms and you have checked you have the correct access permissions, email R&This email address is being protected from spambots. You need JavaScript enabled to view it. to arrange access.

Four Top Business Tips for Early Stage Startups

Author: Harry Hoang CPA | Tailored Accounts CEO

I started my business in 2008 with little to no capital, and have since gone through a number of roller coaster rides along my entrepreneurial journey. Ten years may not be a substantial amount of time for start-up veterans, but it is enough to understand the nature of entrepreneurship. There have been a fair share of lows and highs in my entrepreneurial pursuit, so I can thoroughly understand some of the challenges that start-ups in Canberra face. As an entrepreneur who is trained in accounting, I would like to take this opportunity to share my golden rules of financial management for start-ups.

These are some common mistakes start-ups often encounter:

  • Failure to realise the importance of financial management - Start-ups with poor financial management tend to suffer from poor cash flow and profit margins, ineffective debtor control, and an inability to meet their business’ commitments;
  • Lack of information about alternative support solutions such as recruitment - If crunching the numbers is not your strength, either hire or outsource to an accountant or bookkeeper who will deliver regular and reliable information and advice that you can use to manage your financial position;
  • Reliance on manual data try - Stacks of receipts, manual ledger books, overly simplified data sheets, unorganised financial transactions and reports, and overdue BAS and tax returns are common amongst start-ups with poor internal management skills;
  • Lack of financial management skills - Start-ups tend to focus on their products, ideas, and clients, often neglecting the fundamentals of their business. I have never seen a successful business that does not have strong financial management.

Over years of working with start-ups and other small businesses, I have accumulated a wealth of experience designing a sustainable and affordable accounting solution. Here are some tips to avoid making those mistakes above:

  • A good accounting system is a good return on investment. If you invest $50/month to use online accounting software such as Xero or QuickBooks, it will save you at least $50/month in bookkeeping costs as well as your time. These savings will be crucial for further growth of your business;
  • Do not only start raising funds or getting loans when your business is running out of cash. Plan ahead and have good financial controls in place;
  • Technology is the key driver of a good financial system. If your accountant suggests that you record everything in an Excel spreadsheet, this is no longer sufficient for doing business in the 21st century. The more automation you adopt for your accounting system, the more savings and accuracy you gain;
  • Start-ups need to start working on the business, not in the business. If you aren't able to afford to have a giant financial management system with a qualified in-house CFO, then outsourcing would be the best option.

A good financial care and responsibility is likely to lead your start-up to success  – so make sure you cultivate these good financial habits from the beginning and implement them in the way you do things. 

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