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Edited version of your private ruling
Authorisation Number: 1051919037934
Date of advice: 18 February 2022
Ruling
Subject:Early stage innovation company
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 year ending 30 June 2022?
Answer
Yes.
This ruling applies for the following period:
30 June 2022
The scheme commences on:
1 July 2021
Relevant facts and circumstances
The company was established on x.
Documents and submissions in respect of the innovation being developed by the company were provided to the Commissioner. This information forms the basis upon which this ruling is made.
In respect of the relevant 'current year' referred to in subsection 360-40(1) of the ITAA 1997:
• The company satisfies the requirements of subparagraph 360-40(1)(a), subparagraph 360-40(1)(b), subparagraph 360-40(1)(c), subparagraph 360-40(1)(d) and subparagraph 360-40(1)(f).
• The company does not meet the requirements of the 100-point innovation test.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 360-A
Income Tax Assessment Act 1997 section 360-40
Reasons for decision
In order that a company be considered to be an early stage innovation company to which subsection 360-40(1) applies, the requirements in paragraph 360-40(1)(e) must be met. The provision appears as follows:
'... at the test time, the company has at least 100 points under section 360-45, or:
(i) the company is genuinely focussed on developing for commercialisation one or more new, or significantly improved, products, processes, services or marketing or organisational methods; and
(ii) the business relating to those products, processes, services or methods has a high growth potential; and
(iii) the company can demonstrate that it has the potential to be able to successfully scale that business; and
(iv) the company can demonstrate that it has the potential to be able to address a broader than local market, including global markets, through that business; and
(v) the company can demonstrate that it has the potential to be able to have competitive advantages for that business ...'
Each condition is considered separately below, taking into consideration the taxpayer's submissions, the business and the nature of the innovation.
Subparagraph 360-40(1)(e)(i)
The Commissioner considers that this condition is satisfied.
Subparagraph 360-40(1)(e)(ii)
The Commissioner considers that this condition is satisfied.
Subparagraph 360-40(1)(e)(iii)
The Commissioner considers that this condition is satisfied.
Subparagraph 360-40(1)(e)(iv)
The Commissioner considers that this condition is satisfied.
Subparagraph 360-40(1)(e)(v)
The Commissioner considers that this condition is satisfied.
In light of the above considerations, the Commissioner considers that the requirements of subsection 360-40(1)(e) have been met in this case.