Independent online platform ESIC Hub will begin to provide SMSFs with investment access to the new asset class of early-stage innovation companies (ESIC), which will also provide trustees with significant tax benefits.
From this month, high net worth and sophisticated investors, including SMSFs, are eligible for new tax incentives of up to $200,000 a year when they invest in an early-stage investment, following the unanimous passing of the Tax Laws Amendment (Tax Incentives for Innovation) Act in May.
Concessional tax treatment will be made available under the Corporations Act for sophisticated investors who support ESICs.
“From an architectural point of view, the private equity and venture capital market has typically been an industry that has offered very limited asset exposure and investment opportunities for the industry,” ESIC Hub founder Stephen Crowe said.
“Our mantra is to push innovation into every sphere of the Australian community; it doesn’t need to be restricted to [a certain investor type] and the tax rules reflect that – retail and SMSFs who are not sophisticated investors can contribute up to $50,000 per annum into ESICs and qualify for the [tax benefits].
“The ESIC market is essentially an alternative market to what super funds would traditionally have.”
ESIC Hub was currently in discussions with three start-up companies that should be ESIC-ready by the end of the month, Crowe added.
Commenting on the role of ESICs in an SMSF portfolio, he said they should be considered an alternative asset.
“I’d be suggesting somewhere around the 5 per cent range would be appropriate for an SMSF investor – I’m not suggesting that SMSFs contribute 100 per cent of their asset allocation to this,” he said.
“They can enter this asset class for the purpose of getting some diversification, particularly in these volatile times.
“Because it’s an investment into an Australian unlisted growth company, which is effectively what an ESIC is, we’re looking for seed innovations to grow into the next Google of the world.
“It also offers a very nice tax incentive that the government has designed, with bipartisan support, to encourage this flow of capital into hopefully a new start-up economy for Australia.”''