Edited version of private advice

Authorisation Number: 1052283791617

Date of advice: 31 July 2024

Ruling

Subject: Early-stage innovation company eligibility

Question

Does the Company 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 period:

DD MM YYYY to DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

Background Facts

The Company is a proprietary company incorporated in Australia on DD MM YYYY.

The Company has been a single company with no subsidiaries until recently and not part of an income tax consolidated group.

The Company's founder and Director is Person X.

The Company's registered office is situated at XXX.

The Company earned and incurred the following for the financial year ended DD MM YYYY:

•         total assessable income of $x

•         total expenses of $x.

The Company's equity interests are not listed for quotation in the official list of any stock exchange, either in Australia or a foreign country.

The Company issued ordinary shares to investors during the financial year ended DD MM YYYY.

The Company is developing its own Intellectual Property (IP).

Product Development

The Company is developing a machine to service a particular market (the product).

The product addresses a gap in the market by providing a sustainable option.

The Company's mission includes helping organisations and individuals transition to more sustainable practices. Customers can track their savings and emissions reductions and organisations can compare their sustainability efforts on local and global leader boards.

The Company has developed, from the ground up, this advancement in the industry with a range of in-house engineers, designers and other supporting roles.

The Company has spent X years undertaking the development of prototypes, testing various equipment, and designing and manufacturing their first pre-production units.

The Company's product ecosystem has involved the rapid development of new machines, software, and supply chain methods.

Commercialisation Strategy

The Company is focused on developing the product for a commercial purpose.

The Company's commercialisation strategy coincides with its operational and research activities associated with developing the product.

The Company has been A/B testing various pricing models with paying customers.

The Company raised $X initial funding and are moving into manufacturing. The Company will shortly open another capital raise and scale up with expansion throughout capital cities in Australia.

Following finalisation of the Design For Manufacture (DFM) process, the Company can proceed and fulfil customer orders.

The Company has commenced earning revenue from the product.

The Company expects to be able to break even for the 20XX financial year as they scale their service area and product roll out.

High Growth Potential

The Company has identified the main addressable target market and potential revenue streams.

The Company's high growth potential stems from its ability to meet consumer needs and preferences.

The Company's product offers significant improvement to traditional and similar machines in the market.

The financial projections of the Company show the high growth potential.

Scale up the business

The Company has hired key personnel to support all functions the business requires to scale up.

The Company attracted X sophisticated investors initially to activate its R&D, product development and commercialisation strategy.

The Company is moving into manufacturing which will enable the Company to fulfil customer orders and expand across capital cities in Australia.

The Company will further develop their product to reduce build costs while increasing production.

There is demand for the Company to expand interstate and internationally with letters of intent from businesses based in Australia and overseas.

The Company has established international partners that are looking to distribute the product internationally.

Broader than Local Market

The Company has identified its local and broader markets in Australia and its international markets.

Demand for the Company to expand interstate and internationally has been expressed by businesses based in Australia and overseas.

The Company has established international partners to distribute the product internationally for the Company.

Competitive Advantages

The Company conducted analysis of the competition in the domestic and international market as part of the design and development of the product which concluded that the features and functionalities being developed by the Company are unique and significantly differ from its competitors.

Intellectual property

The Company currently holds the IP of the systems and processes developed over past X years.

The Company has registered its trademark and product design with IP Australia.

The Company takes operational action to protect its IP from competitors replicating the product.

Information provided:

You have provided documents containing detailed information in relation to the Company's product, including:

•         Private Binding Ruling (PBR) Application dated DD MM YYYY.

•         Responses to requests for information.

•         Various company documents.

We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 360-A

Income Tax Assessment Act 1997 section 360-15

Income Tax Assessment Act 1997 section 360-40

Income Tax Assessment Act 1997 section 360-45

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