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Edited version of private advice
Authorisation Number: 1052392699424
Date of advice: 06 May 2025
Ruling
Subject: ESIC 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 income year ended 30 June 20XX?
Answer 1:
Yes
This ruling applies for the following periods:
1 July 20YY
Relevant facts and circumstances
Early stage test
1. The Company is an Australian proprietary company incorporated in Australia on XX MM YYYY.
2. Its equity interests are not listed for quotation in the official list of any stock exchange in Australia or a foreign country, nor will they be listed at any time up to and including 30 June 20XX.
3. In the income year ended 30 June 20YY, the Company had nil trading activity.
Background facts
4. The Company has no wholly or partly owned subsidiaries and is not part of an income tax consolidated group.
5. The Company is not a foreign company within the meaning of the Corporations Act 2001 (Cth).
6. 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 20YY, and on or before 30 June 20XX.
7. The Company issued new shares on XX MM YYYY.
Product development
8. The Company is developing an innovation.
9. The Company has identified its immediate addressable domestic market, with a view to expand into international markets, should the product prove to be successful in the domestic market.
Commercialisation strategy
10. The Company has detailed its commercialisation strategy with an initial offering. The Company will then offer its full-service product once key partnerships have been secured.
11. The Company will utilise various marketing strategies to reach the target audience. Marketing materials will highlight the innovation's key differences compared to competitors.
High growth potential
12. There is currently no existing product to service the identified market in the way the innovation does. The Company has identified high growth potential through analysis of the potential market.
Scale up the business
13. The Company aims to scale by investing in the innovation and security of intellectual property, strengthening customer relationships, implementing financial controls and risk management practices, consistently release updates to the innovation and using external partners to scale operations as needed to meet market demands.
Broader than the local market
14. If the Company proves successful in the Australian market, the Company will aim to expand into international markets, adapting to local preferences as needed.
Competitive advantages
15. The Company's marketing materials will highlight the unique features of the product and how it is different from its competitors.
16. Current potential competitors do not offer the same features as the Company and do not target the same audience.
Conclusion
17. The Company meets the eligibility criteria of an ESIC under section 360-40 for the income year ended 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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