20% back for your investors and a ten-year CGT exemption — if the company qualifies on the day the shares are issued.
The early stage innovation company incentive is the most valuable thing an Australian startup can offer an angel investor, and the one most often raised late, misunderstood, or lost on a technicality. It gives the investor a 20% non-refundable carry-forward tax offset on what they paid for new shares, and it disregards the capital gain if they hold those shares for at least twelve months and less than ten years.
It is also a test the company must pass, on the day the shares are issued, and several of the ways to fail it are things founders do to themselves.
General information, not advice. CatenaHQ is software. These guides are not legal, financial, tax or investment advice, and none of them takes account of your circumstances. Figures are from the ATO and current as at October 2026. Eligibility is fact-specific and the principles-based limb is subjective; get your own advice, and consider a private binding ruling.
20% of the amount paid for eligible new ESIC shares. It is non-refundable and carry-forward: it reduces tax payable and is carried forward if unused, rather than being paid out as a refund.
$200,000 per income year, counting the investor and their affiliates together. That is the offset cap, not an investment cap.
A gain on qualifying shares held for at least 12 months and less than 10 years may be disregarded entirely. The $200,000 offset cap does not limit which shares get this treatment.
A loss on shares held for less than 10 years must be disregarded. The exemption runs both ways, and an investor who writes the investment off gets no deduction for it.
Retail investors are capped at $50,000. A non-sophisticated investor who puts more than $50,000 into qualifying ESICs in an income year gets no incentive at all — not a reduced one, none. The $200,000 figure is the offset cap for investors who meet the sophisticated investor test for at least one offer. Confusing the two is how a friends-and-family round quietly destroys the benefit it was sold on.
All four, measured against the prior income year unless stated:
These are small numbers. A company with a year of modest revenue behind it, or one that has been trading quietly for four years before raising, is already out. The practical consequence is that ESIC eligibility has a short life, and it should be used rather than saved.
Objective. The company accumulates at least 100 points against criteria the ATO publishes — things like R&D expenditure, an accelerator place, prior third-party capital, patents, and co-developed IP. If you reach 100 points you are done, with no judgement involved.
Subjective. The company is developing a new or significantly improved product, process or service to commercialise, with high growth potential and the ability to scale and address a broad market. Because it is a judgement, a private binding ruling from the ATO is the usual way to get certainty.
A widely held company is excluded: listed, or more than 50 shareholders, subject to certain requirements. This collides directly with equity crowdfunding, which is designed to produce hundreds of shareholders. Run a CSF campaign and the ESIC door may close behind it.
After the issue, the investor with their connected entities cannot hold rights to more than 30% of income or capital, or control more than 30% of the votes. A single large cheque into a small cap table can breach it.
The investor and the company cannot be affiliates at the time the shares are issued — broadly, where one acts or would be expected to act under the other's directions or in concert with it.
The investor must acquire newly issued shares directly from the company, and they must be equity rather than debt. Buying shares from an existing holder does not qualify, and nor do shares acquired under an employee share scheme.
Shares issued on conversion of a convertible note can qualify — and the relevant date is the conversion date. The company has to satisfy the ESIC tests immediately after those shares are issued, which may be two years after the money arrived.
That is the trap. A note raised while the company comfortably passed the early stage test converts at the next priced round, by which time expenses have passed $1 million, revenue has passed $200,000, or three years have elapsed since incorporation. The investor who was told they would get the offset does not get it, and nobody notices until their accountant asks.
If ESIC matters to your investors, that is an argument for issuing shares now rather than a note. See convertible notes and SAFEs in Australia for the rest of that trade-off.
One piece of good news. If the company later stops being an ESIC, that does not affect an investor whose shares already qualified. The test is applied once, when the shares are issued.
Every one of the exclusions above is answered by the register: when the shares were issued, whether they were newly issued or transferred, what percentage the holder ended up with, and how many shareholders the company has. CatenaHQ keeps those at allotment level, so the question "did this parcel qualify, and on what date" has an answer rather than an argument.
The shareholder count matters more than founders expect. Crossing fifty is a threshold you cross once, usually without noticing, and it is visible on the register before it is visible anywhere else.
Matching concessions and grants to your own sector and stage is what the grant discovery module is for.
All of the CatenaHQ guides are written the same way: from the Act and the regulations, with the section numbers shown.
Why the offset is tested at the conversion date, and the rest of the note-versus-priced-round trade-off.
The sophisticated investor test that decides whether the $50,000 retail limit applies to your investor.