--- title: What is an ESIC? How do I become an ESIC? And what this means for startups raising capital (Australia) description: Investors can receive immediate tax offsets and capital gains free investments if your startup is deemed to be an Early Stage Innovation Company (ESIC). Here's everything you need to know. --- [Skip to content](https://support.standardledger.co/knowledge/what-is-an-esic-how-do-i-become-an-esic-and-what-this-means-for-startups-raising-capital#main-content) ![](https://support.standardledger.co/hs-fs/hubfs/Standard%20Ledger%20Logo_RGB_transparent.png?height=40&name=Standard%20Ledger%20Logo_RGB_transparent.png) Open main navigation Close main navigation - [Contact us](mailto:support@standardledger.co) [Contact us](mailto:support@standardledger.co) Hi, how can we help you? - There are no suggestions because the search field is empty. 1. [Knowledge Base](https://support.standardledger.co/knowledge?hsLang=en) 2. [TAX and COMPLIANCE](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en) 3. [Structure](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#structure) # What is an ESIC? How do I become an ESIC? And what this means for startups raising capital (Australia) ## Investors can receive immediate tax offsets and capital gains free investments if your startup is deemed to be an Early Stage Innovation Company (ESIC). Here's everything you need to know. *What is an ESIC? An Early Stage Innovation Company (ESIC) is a company that has started in the last 3 years, has expenses of less than $1 million and has assessable income of less than $200k. It is also involved in innovation.* The offset is capped at $200,000 per year for sophisticated investors and non-sophisticated investors are able to invest up to $50,000 per year on which they can claim the 20% offset for non-sophisticated investors. *This means that if a sophisticated angel investor invests $200k in an ESIC they get a $40k tax offset. This make end of financial year a particularly attractive time to be raising capital.* To make it even more attractive for investors: They get a 10-year exemption from Capital Gains Tax (if they’ve held the shares for at least 12 months). This means that **any gains** investors make on the sale of these shares will be **tax free**. ![](https://support.standardledger.co/hubfs/Knowledge%20Base%20Import/downloads.intercomcdn.comio56414452b58ca9cb8efa77bbb67204daTax_ESIC_Offsets_pptx.jpg) **So how do startups "become" an ESIC?** A company will qualify as an ESIC if it meets both: - the [early stage test](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?page=2) (<3 years old, expenses<$1 million, income<$200k) AND - either 1. [100-point innovation test](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?page=2) or 2. [principles-based innovation test](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?anchor=Principlesbasedinnovationtest). ![](https://support.standardledger.co/hubfs/Knowledge%20Base%20Import/downloads.intercomcdn.comio597178727cc34cf034159fb71b134e5besic2.jpg) Most companies can make their own determination if they pass the [100-point test](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?page=2) which is based on points allocated to whether you're doing a combination of R&D, received an Accelerating Commercialisation grant, in an *eligible* accelerator (note this cannot include one that is in its first cohort), raised $50k or have patents. If you don't pass the 100-point test and need to rely on the [principles-based test](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?anchor=Principlesbasedinnovationtest) it's a little more subjective and you may need to have an independent outside view of eligibility. And for certainty for your investors it may also pay to have the ATO provide a pre-approval of your circumstances. You will also need to inform the ATO of any investors who are availing themselves of the ESIC determination,  A[n ESIC report needs to be submitted to the ATO](https://support.standardledger.co/knowledge/as-an-esic-what-/-when-do-i-need-to-report-to-the-ato?hsLang=en) by 31 July for the prior year. **More information** - [Tax incentives for early stage investor](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/)s \[ATO website\] - [Qualifying as an early stage investment company](https://www.ato.gov.au/Business/Tax-incentives-for-innovation/In-detail/Tax-incentives-for-early-stage-investors/?page=2) \[ATO website\] - [Accelerating Commercialisation grant](https://www.business.gov.au/assistance/entrepreneurs-programme/accelerating-commercialisation) \[AusIndustry website\] - [STARTUP FOUNDER INFORMATION](https://support.standardledger.co/knowledge/startup-founder-information?hsLang=en#main-content) - [Startup Funding](https://support.standardledger.co/knowledge/startup-founder-information?hsLang=en#startup-funding) - [CONTACTING STANDARD LEDGER](https://support.standardledger.co/knowledge/contacting-standard-ledger?hsLang=en) - [OUR BOOKKEEPING SERVICES](https://support.standardledger.co/knowledge/our-bookkeeping-services?hsLang=en#main-content) - [Bookkeeping Services](https://support.standardledger.co/knowledge/our-bookkeeping-services?hsLang=en#bookkeeping-services) - [Dext for Supplier invoices and Employee Expenses](https://support.standardledger.co/knowledge/our-bookkeeping-services?hsLang=en#dext-for-supplier-invoices-and-employee-expenses) - [OUR PAYROLL SERVICES](https://support.standardledger.co/knowledge/our-payroll-services?hsLang=en#main-content) - [Employers](https://support.standardledger.co/knowledge/our-payroll-services?hsLang=en#employers) - [Employees](https://support.standardledger.co/knowledge/our-payroll-services?hsLang=en#employees) - [OUR TAX SERVICES](https://support.standardledger.co/knowledge/our-tax-services?hsLang=en#main-content) - [Activity Statements](https://support.standardledger.co/knowledge/our-tax-services?hsLang=en#activity-statements) - [Tax Returns](https://support.standardledger.co/knowledge/our-tax-services?hsLang=en#tax-returns) - [OUR CFO SERVICES](https://support.standardledger.co/knowledge/our-cfo-services?hsLang=en) - [OUR FINANCIAL MODELING SERVICES](https://support.standardledger.co/knowledge/our-financial-modeling-services?hsLang=en#main-content) - [Financial model usage guidelines](https://support.standardledger.co/knowledge/our-financial-modeling-services?hsLang=en#financial-model-usage-guidelines) - [OUR R&D TAX INCENTIVE SERVICES (Australia)](https://support.standardledger.co/knowledge/our-rd-tax-incentive-services-australia?hsLang=en) - [OUR GRANT SERVICES](https://support.standardledger.co/knowledge/our-grant-services?hsLang=en#main-content) - [Top Grants](https://support.standardledger.co/knowledge/our-grant-services?hsLang=en#top-grants) - [OUR VALUATION SERVICES](https://support.standardledger.co/knowledge/our-valuation-services?hsLang=en#main-content) - [How we prepare your valuations](https://support.standardledger.co/knowledge/our-valuation-services?hsLang=en#how-we-prepare-your-valuations) - [OUR ACCOUNTS PAYABLE SERVICES](https://support.standardledger.co/knowledge/our-accounts-payable-services?hsLang=en) - [ACCOUNTING](https://support.standardledger.co/knowledge/accounting?hsLang=en#main-content) - [Xero](https://support.standardledger.co/knowledge/accounting?hsLang=en#xero) - [Accounting / Bookkeeping Articles](https://support.standardledger.co/knowledge/accounting?hsLang=en#accounting-bookkeeping-articles) - [PAYROLL](https://support.standardledger.co/knowledge/payroll?hsLang=en#main-content) - [Payroll articles](https://support.standardledger.co/knowledge/payroll?hsLang=en#payroll-articles) - [TAX and COMPLIANCE](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#main-content) - [Structure](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#structure) - [Key dates and How PAYG and GST work](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#key-dates-and-how-payg-and-gst-work) - [ATO information](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#ato-information) - [Income and deductions](https://support.standardledger.co/knowledge/tax-and-compliance?hsLang=en#income-and-deductions) - [UK ARTICLES](https://support.standardledger.co/knowledge/uk-articles?hsLang=en#main-content) - [Company setup and operations](https://support.standardledger.co/knowledge/uk-articles?hsLang=en#company-setup-and-operations) - [Payroll](https://support.standardledger.co/knowledge/uk-articles?hsLang=en#payroll) - [VAT](https://support.standardledger.co/knowledge/uk-articles?hsLang=en#vat) - [Raising Capital](https://support.standardledger.co/knowledge/uk-articles?hsLang=en#raising-capital) Need support? 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