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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 of 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% 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 has held the investment in PaySmart for the minimum three year period and less than 10 years, the full capital gain of $200,000 is exempt from capital gains tax.