Edited version of private advice

Authorisation Number: 1052238195765

Date of advice: 3 April 2024

Ruling

Subject: Early stage innovation companies

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 1 July 20XX to 30 June 20XX?

Answer:

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Early Stage Test

1.            The Company is an Australian proprietary company incorporated in 20XX.

2.            For the income year ended 30 June 20XX the Company incurred less than $1 million and earned less than $200,000.

3.            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.

Background Facts

4.            The Company has no wholly or partly owned subsidiaries. The Company 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 20XX, and on or before 30 June 20XX.

Product Development

7.            The Company is developing digital tools and believes that it is unique from anything produced or available.

8.            The tools are intended to serve people rather than replace them.

Product Development Stages

9.            The Company is in the midst of refining and developing the product. The current activities revolve around a Product Market Fit assessment with a group of select participants. This is not a commercial launch but an essential development step.

Commercialisation Strategy

10.          Due to the rapid emergence of such applications, it is not a sound commercial strategy to delay launching until a refined product is available. Part of the product development and product market fit requires the product to be publicly available to understand the pricing model and test the payment gateways globally in a live scenario.

High Growth Potential

11.          The market that has been targeted has similar processes that are followed globally. Focusing on the segment offers a potential addressable market of worldwide organisations.

12.          The Company's calendar year forecasts show revenue rapidly increasing over coming years.

Scale up the Business

13.          The technology stack scales as the user base increases, meaning there is no need for the development team to grow exponentially.

14.          As more users join, it is expected that the platform will benefit from a network effect. The tools are designed to expand in the growing digital space without incurring proportionally higher operating costs.

Broader than Local Market

15.          The Company's launch strategy will focus on a global sector. It is targeting a minimum percentage of its product launching in Australia, with the remainder overseas.

Competitive Advantages

16.          The Company has a unique product and first-mover advantage that can be rapidly scaled. The company is unaware of any direct competitors.

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