New Taxpayer Alert on Early Stage Investor Tax Offset Scheme
The Australian Taxation Office (ATO) has issued a new taxpayer alert (TA 2024/1) regarding a tax avoidance scheme involving the Early Stage Investor Tax Offset (ESIC). This alert highlights potential risks for taxpayers and significant penalties for those involved in such arrangements.
Understanding the Scheme
The scheme typically involves individuals being approached with an investment opportunity in a start-up company. Scheme promoters assure these individuals that the start-up qualifies as an ESIC, enabling them to claim the ESIC.
However, the arrangement involves circular financing, where promoters lend the individual money to purchase shares in the start-up and the funds are moved through a series of transactions to facilitate access to the tax offset. The ATO has expressed concerns that many of these start-ups may not meet the criteria to qualify as an ESIC.
Implications
Individuals unknowingly participating in such schemes may find themselves entangled in tax avoidance issues, facing significant penalties.
The ATO is also scrutinising companies that claim ESIC status but appear to carry out minimal or no legitimate business activities. Companies found to be in such schemes may also face penalties and further investigation.
Here’s what taxpayers should do:
- If approached with investment opportunities that promise unusually high returns or significant tax offsets, exercise caution.
- Seek advice from an independent, registered tax professional, one with no connection to the arrangement, before committing to any investments or financial transactions.
Navigating tax obligations and investment opportunities can be complex, especially when it involves schemes such as the Early Stage Investor Tax Offset.
Our team can help verify the legitimacy of ESIC claims, assess potential risks and offer guidance to protect clients from inadvertently participating in tax avoidance schemes.
For more information, reach out to your Simmons Livingstone advisor at 1800 618 800 or via email at admin@simmonslivingstone.com.au.
