Tax Payer Alert: Early Stage Investor Tax Offset Unlawfully Claimed

The Australian Taxation Office (ATO) has issued a tax payer alert in response to a new tax avoidance scheme being promoted in the community.

Main points of the scheme as stated by the ATO are:

• An investment opportunity in a start-up company is promoted to individuals by the scheme operators;
• Investors told the start-up qualifies for early stage investor tax offset as it is an ‘Early Stage Innovation Company’ (ESIC) under subsection 360-40 of the Income Tax Assessment Act 1997 (ITAA 1997);
• Operators lend money to Investor to buy shares;
• The individual claims the tax offset in their tax return and receives a refund, which is then partially used to repay the finance. A share buy-back scheme may be implemented so the balance of the finance can be repaid;
• The Investor has therefore not paid anything for any residual shareholding in the company; and
• The refunded tax offset is shared between the individual, the company and facilitators/financiers.

Advisers who promote these schemes could be subject to ‘Promoter Penalty Laws’.

Here is the LINK to the tax payer alert publication from the ATO.