How it will work in practice

Jessica is the founder of a startup business called PaySmart Pty Ltd that is developing a software application to automate bill payments. She is looking to raise $200,000 in equity finance to continue developing the software.

Alex is an experienced early stage (angel) investor and believes that PaySmart has excellent growth potential. He invests $200,000 and claims a 20 per cent non-refundable tax offset, reducing his income tax payable by $40,000.

In addition to contributing capital, Alex uses his business skills to help PaySmart grow. He sells his shares for $400,000 four years later. As Alex’s investment in PaySmart is a qualifying investment and has been held for between 12 months and 10 years, the full capital gain of $200,000 is exempt from capital gains tax.