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Edited version of private advice
Authorisation Number: 1052333681966
Date of advice: 20 November 2024
Ruling
Subject: Early stage innovation company eligibility
Question 1
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 1 July 20XX to 30 June 20XX?
Answer 1
Yes
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
Background Facts
The Company is an Australian proprietary company incorporated on XX date.
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 does not have any wholly or partly owned subsidiaries and is not part of an income tax consolidated group.
The 'test time' for determining if the Company is a qualifying ESIC, will be upon the issue of qualifying shares on a particular date or dates on or after 1 July 20XX and on or before 30 June 20XX.
The Company proposes to issue new shares to various investors to assist in funding the continued development and commercialisation of their product on or after 1 July 20XX and on or before 30 June 20XX.
Product Development
The Company is developing new technologies which supersede existing poor user experiences. The technology being developed is new and is not an alteration or improvement to an existing technology.
Product Development Stages
The Company provided the development stages.
Commercialisation Strategy
The Company has a unique opportunity to leverage an existing agreement and revenue stream in phase one to fund and commercialise phase two. This approach will allow the Company to become the global leader in the market.
The Company has entered a strategic agreement with two prominent international companies.
High Growth Potential
The Company has a high growth potential, particularly during the first phase which focuses on fostering a more informed decision-making process for potential customers.
Scale up the Business
The Company has identified potential to successfully scale the new technology and has identified international markets which are both willing to adapt and purchase at commercial prices the new technology.
Additional key markets for the technology have also been identified.
Broader than Local Market
The technology has been developed for sale to a worldwide target market. Preliminary work with large companies has indicated a willingness to adopt the technology once developed.
The Company has detailed how they can demonstrate its potential to address broader than local markets, including global markets by researching the targeted market as follows:
Competitive Advantages
The Company has identified the competitive advantages that the new technology will deliver. There is a high demand for the product.
A significant competitive advantage is achieved by the cost-savings possible from using new technology. The high costs of creating such product using existing technologies currently prevents the product from being viable for competitors to produce.
The Company's unique product is built for massive scale, able to handle thousands of customers without dramatically increasing overheads.
The Company's product is a first-of-its-kind product with no direct competitors in the market.
Conclusion
The Company meets the eligibility criteria of an ESIC under subsection 360-40(1) during the income year ending 30 June 20XX.
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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