| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051462059051
Date of advice: 03 December 2018
Ruling
Subject: Early Stage Innovation Company qualification
Question 1
Will Company A obtain 50 points under item 4 of the table in subsection 360-45(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for completing an eligible accelerator program?
Answer
Yes. Company A will obtain 50 points for completing an eligible accelerator program.
Question 2
Does Company A meet the early stage test under paragraphs 360-40(1)(a) to (d) of the ITAA 1997?
Answer
Yes. Company A will meet the early stage test under paragraphs 360-40(1)(a) to (d) of the ITAA 1997.
This ruling applies for the following period:
Year ending 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
Question 1 specific facts:
1. Company A has completed a structured program provided to start-up companies that is cohort based, includes co-location and mentoring.
2. The program includes a merit-based screening process, and provides time limited support. It has been provided to cohorts of entrepreneurs for more than 6 months and past cohorts have completed the program.
3. Company A was incorporated in Australia on Date X. Its equity interests are not listed for quotation in the official list of any stock exchange.
4. Company A has one wholly owned subsidiary. Company A and the subsidiary had expenses of less than $1 million and assessable income of less than $200,000 in the previous income year; in the year ended 30 June 2018.
5. Documents in respect of the innovation being developed by Company A was provided and the relevant information within these documents in applying the relevant tests to their circumstances.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 360-A
Income Tax Assessment Act 1997 section 360-40
Income Tax Assessment Act 1997 subsection 360-45(1)
Reasons for decision
All legislative references are to the ITAA 1997 unless otherwise indicated.
Question 1
Will Company A obtain 50 points under item 4 of the table in subsection 360-45(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for completing an eligible accelerator program?
Summary
Company A will obtain 50 points for completing an eligible accelerator program.
Detailed reasoning
Eligible Accelerator Program
1. Accelerators have been identified as having five defining, partially interdependent features; seed funding, cohort based, co-location, a structured program and mentoring.
2. Based on the information provided by Company A, the program that the company has undertaken was cohort based, included co-location, was a structured program and included mentoring.
Specific factors under 360-45
A merit-based screening process
3. Based on the information provided by Company A, the program that the company has undertaken included a merit-based screening process.
The company, not an individual, must complete the program
4. Company A provided a copy of the certificate awarded to the company (not the directors) for completion of the program.
Time-limited support
5. Based on the information provided by Company A, the program that the company has undertaken provides time limited support.
Six month minimum period
6. Based on the information provided by Company A, the program has been provided to cohorts of entrepreneurs for more than 6 months.
Prior completion by a cohort of entrepreneurs
7. Based on the information provided by Company A, previous cohorts of entrepreneurs have completed the program.
Question 2
8. Does Company A meet the early stage test under paragraphs 360-40(1)(a) to (d) of the ITAA 1997?
Summary
9. Company A will meet the early stage test under paragraphs 360-40(1)(a) to (d) of the ITAA 1997.
Detailed reasoning
Qualifying Early Stage Innovation Company
10. Subsection 360-40(1) outlines the criteria required for a company to qualify as an Early Stage Innovation Company (ESIC) at a particular time in an income year. This time is referred to as the test time. The criteria are based on a series of tests to identify if the company is at an early stage of its development and it is developing new or significantly improved innovations to generate an economic return.
‘The early stage test’
11. The early stage test requirements are outlined in detail within paragraphs 360-40(1)(a) to (d).
Incorporation or Registration – paragraph 360-40(1)(a)
12. To meet the requirement in paragraph 360-40(1)(a), at a particular time (the test time) in an income year (the current year) the company must have been either:
(i) incorporated in Australia within the last three income years (the latest being the current year); or
(ii) incorporated in Australia within the last six income years (the latest being the current year), and across the last three of those income years the company and its 100% subsidiaries incurred total expenses of $1 million or less; or
(iii) registered in the Australian Business Register (ABR) within the last three income years (the latest being the current year).
13. The term ‘current year’ is defined in subsection 360-40(1) with reference to the ‘test time’; the ‘current year’ being the income year in which the company issues shares to the investor.
14. A company that does not meet any of these conditions will not qualify as an ESIC.
Total expenses - paragraph 360-40(1)(b)
15. To meet the requirement in paragraph 360-40(1)(b), the company and its 100% subsidiaries must have incurred total expenses of $1 million or less in the income year before the current year.
Assessable income - paragraph 360-40(1)(c)
16. To meet the requirement in paragraph 360-40(1)(c), the company and its 100% subsidiaries must have derived total assessable income of $200,000 or less in the income year before the current year.
No stock exchange listing - paragraph 360-40(1)(d)
17. To meet the requirement in paragraph 360-40(1)(d), the company must not be listed on any stock exchange in Australia or a foreign country.
Application to your circumstances
Test time
18. For the purposes of this ruling, the test time for determining if Company A is a qualifying ESIC will be a particular date during the income year ending 30 June 2019.
Current year
19. For the purposes of subsection 360-40(1), the current year will be the year ending 30 June 2019 (the 2019 income year).
Early stage test
Incorporation or Registration – paragraph 360-40(1)(a)
20. As Company A was incorporated on Date X, which is within the last 3 income years, subparagraph 360-40(1)(a)(i) is satisfied.
Total expenses – paragraph 360-40(1)(b)
21. As Company A had expenses of $1 million or less in the prior income year (the 2018 income year) paragraph 360-40(1)(b) is satisfied
Assessable income – paragraph 360-40(1)(c)
22. As Company A’s assessable income in the prior income year (the 2018 income year) is $200,000 or less paragraph 360-40(1)(c) is satisfied.
No stock exchange listing – paragraph 360-40(1)(d)
23. As Company A is privately owned and is not listed on any stock exchange in Australia or a foreign country paragraph 360-40(1)(d) is satisfied.
Conclusion on early stage test
24. Company A will satisfy the early stage test for the entire 2019 income year, as each of the requirements within paragraphs 360-40(1)(a) to (d) have been satisfied.
Conclusion
25. Company A will meet the eligibility criteria of an ESIC under section 360-40 when the directors self-assess the company can obtain an additional 50 points under the table in subsection 360-45(1) until 30 June 2019.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
