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Edited version of private advice
Authorisation Number: 1052250694498
Date of advice: 26 June 2024
Ruling
Subject:Early stage innovation company eligibility
Question:
Does Company X meet the criteria of an Early Stage Innovation Company (ESIC) under subsection 360-40(1) of the Income Tax Assessment Act 1997 ('ITAA 1997') for the period DD MM YYYY to DD MM YYYY?
Answer:
Yes.
This ruling applies for the following periods:
DD MM YYYY to DD MM YYYY
The Scheme commences on:
DD MM YYYY
RELEVANT FACTS AND CIRCUMSTANCES
Early Stage Test
Company X is an Australian proprietary company incorporated in XXX on DD MM YYYY.
For the financial year ending DD MM YYYY, Company X incurred and earned the following:
• Total expenses of $xxx
• Total income of $yyy
Company X's total expenditure in the last three financial year was $zzz.
Company X's equity interests are not listed for quotation in the official list of any stock exchange, either in Australia or a foreign country.
Background Facts
Company X has no wholly or partly owned subsidiaries. Company X is not part of an income tax consolidated group.
Company X's director is Taxpayer A, Taxpayer B and Taxpayer C.
Company X's registered office and principal place of business is situated at XXX.
Company X is not a foreign company within the meaning of the Corporations Act 2001 (Cth).
Company X owns rights to all IP related to its technology and processes.
Product Development
Company X is developing a safety system in a defined industry for consumers.
Company X has tested its beta technology. Company X expects the system will continue to improve as additional integrations, adaptations and proprietary datasets are integrated.
Company X is currently continuing to develop its Product as a flexible platform that can be adapted to existing as well as new equipment.
Commercialisation Strategy
Company X has signed an unincorporated joint venture agreement with one of its potential customers.
Company X has assembled a team with experience in commercialisation, innovation and technology.
High Growth Potential
Company X has high growth potential given that there is a global market for its Product.
Company X estimated that the market will continue growing at XX% compound annual growth rate.
The founder believes that the Company X technology can be applied and adapted to other global markets.
Scale up the Business
Company X has the potential to scale up as the majority of the cost of building its Product hardware is covered by its launch partner. Company X will receive XX% royalty on each sale.
Company X expects the margin to grow as early/upfront costs, being one offs, result in improved supplier margins with volume orders.
Company X believes that using customers' existing plant and distribution network will allow the business to grow rapidly and provides the company the opportunity to focus on developing its Product.
Broader than Local Market
Company X believes that locally developed technology can be developed in Australia for the global market, however Company t sees its existing addressable market (as a startup) remains within Australia.
Company X plans to launch its Product in the global market in the future.
Competitive Advantages
Company X states it has critical system advantages in serval areas.
Company X states that its core capabilities have advantages over its competitors.
When completed, Company X will be a unique product.
Information provided
You have provided a number of documents containing detailed information in relation to Company X's Product, including:
• your Private Binding Ruling ('PBR') Application dated DD MM YYYY.
We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.
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