Sponsored Content

ESIC launch offers a new solution for investors facing a FY19/20 tax bill

26 May 2020

Kim Nguyen

Kim Nguyen is the Head of Australia for Foresight Group, responsible for managing over 250MW of solar generation assets, and actively growing Foresight’s Australian sustainability-focused funds management business.

Whether it is capital gains or income, in this year or in future years, ESICs can deliver up to $200,000 in tax savings to investors every year. Foresight Group’s, Head of Australia, Kim Nguyen talks about how to bring together an ESIC with the added benefits of capital preservation and sustainable investment.  

With the end of the FY19/20 tax year fast approaching, many clients will be happy to bid farewell to what has been a turbulent and challenging financial year.

Whilst some clients will have realised losses in the biggest equity sell off in many years, others have played the volatility to their advantage and will have a net capital gain from the sale of equities, property or a business interest.  A tax bill will await these investors as well as others who are drawing incomes from multiple sources such as salaries, bonuses and dividends.

Unlocking the ESIC advantage in tax offsets

Some years ago, the Government introduced investment incentives to encourage individuals to invest in Early Stage Innovation Companies (ESIC).  As distinct from other new businesses, these are high growth startups that are scalable, address a large market and pass stringent tests to meet the criteria for ESIC.  They are now also crucial to Australia’s economic recovery owing to the multiplier effect of this rapid growth on areas such as employment.

Under the ESIC incentive structure, investors are eligible for a 20% tax offset against their capital gains tax and income tax bills. For a wholesale investor, the cap for the ESIC tax offset for a single tax year is at a value of $200,000 (equivalent to $1 million investment).  This means that, for example, an investor who has a FY19/20 tax bill of $200,000 and invests $1,000,000 before 30 June 2020 will receive the benefit of $200,000 off their tax bill. Any unused amounts can be carried forward for future tax bills.

Additionally, gains on the sale of an ESIC investment are CGT free so long as share ownership does not account for more than 30% of the company and they are held for between 1 to 10 years.  All ESIC benefits (including the tax offset) are locked in immediately upon investment, not when funds are used by the startup.

Accessing ESIC in Australia

As we navigate a post-COVID-19 investment landscape, early stage investment may strike fear into nervous investors owing to the perceived high risk of venture capital and the lengthy investment terms typically required. This is not without good reason as historically ESIC has been the preserve of tech startups, primarily accessed through VC fund managers.

But times are changing and the current recession has led to a recalibration of risk with many investors now focused on capital preservation. To meet this need there is now a new ESIC option for those wanting the benefits of ESIC without the lengthy tie-in and higher risk of equity-based investment.

The new Foresight Solar Debt ESIC investment is giving investors a way to unlock the benefits of ESIC, but in such a way that is asset-backed with low volatility and delivering a steady cash flow. This will appeal to those seeking a tax-efficient investment with the peace of mind of secure first ranking senior debt. And because this is a debt product there is a finite loan period so investors have greater certainty about when they will get their money back as well as targeting minimum after-tax returns of circa 14%* equivalent to 27%* gross return.

This product is open to wholesale investors only.

Meeting a growing need to invest in sustainability

The new Foresight Solar Debt ESIC product has been launched by leading global sustainability and infrastructure manager, Foresight, in response to the rapidly growing interest in sustainable investments and renewables, as billions of dollars are divested from fossil fuels.  The Foresight Solar Debt ESIC will fund a third-party owner of solar plant in the form of debt as well as investing in a solar drone technology product with high growth potential.  It is this latter aspect which gives the investment its ESIC status.

So many aspects of our future are uncertain in the post-COVID-19 environment but energy transition is not. Renewables are the future, energy transition is already happening, and it’s a matter of when, not if, Australia moves to clean energy sources.  This new product provides investors a way to gain exposure to the global movement that is rapidly gaining momentum. A $100,000 investment would result in 170 tonnes of C02 saved each year; which is the equivalent of 1.2 hectares of bushfire affected forest or providing clean energy to 44 households per annum.  The meeting of technology and renewables in Foresight Solar Debt ESIC is an exciting opportunity for investors.

The Foresight Solar Debt ESIC is open until 19th June for wholesale investors.  For more information, please contact [email protected]

* assumes investor is a 45% marginal tax rate payer with a tax liability to offset in the 2019/20 tax year and that the senior loan driven return is in the middle of the target range at 3.5% per annum after 2 years.

This information has been prepared by Foresight Group Australia Pty Ltd (ABN 76 611 110 617) an authorised corporate representative of Foresight Group LLP (authorised by the FCA in the UK under FRN 198020), without taking into account any client’s objectives, financial situation or needs. No person should act on the information without first considering whether it is appropriate to their own objectives, financial situation and needs. Past performance is not a reliable indicator of future performance. An investment into a small unquoted company may carry a higher risk that many other forms of investment and may be illiquid and difficult to realise. You should obtain and consider the Information Memorandum and Company Documents relating to a product and consider seeking tax and financial advice before making a decision about whether to acquire that product.