Edited version of private advice

Authorisation Number: 1052238330199

Date of advice: 03 April 2024

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 period 1 July 20XX to 30 June 20XX?

Answer:

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

The Scheme commences on:

1 July 20XX

Relevant facts and circumstances

Early Stage Test

1.    The Company is an Australian proprietary company registered on the Australian Business Register in 20XX.

2.    For the income year ended 30 June 20XX, the Company incurred less than $1 million in expenses 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 a new platform for a specific industry.

8.    The existing platform is limited in its application. No platform allows for the aggregation of platforms and structures into one singular platform regardless of location or operator. As such, the Company intends to develop new algorithms and software architecture that will result in a new platform.

9.    The Company has received advice that the platform maybe patentable. IP will be protected through the execution of mutual non-disclosure agreements (NDAs) and similar agreements and seeking trademark protections.

Product Development Stages

10. The platform is currently in the process of being developed. The core architecture and technology stack has been finalised, key functions established, and features required for early implementation are being progressively developed.

11. The Company is currently in the process of building the minimum viable platform (MVP). Following this the Company will be deploying continuous updates which will incrementally solve more customer problems and provide further flexibility.

12. The Company plans to trial its MVP with customers. The MVP will continue to evolve and improve over time based on market trends, customer feedback and demand.

Commercialisation Strategy

13. A significant amount of quantitative and qualitative research, through both primary and secondary means, was conducted from the earliest stages. Quantitative research included obtaining data from industry associations, payment schemes, statistics agencies and industry reports on the relevant metrics of various markets in a number of key of geographies.

14. The initial strategy is to start with small operators within Australia whilst they trial the MVP and early releases of the platform. This makes obtaining feedback easier, since they are local and there is less red tape in order to make regular changes and improvements to the software.

15. The Company then plans to rapidly expand overseas.

16. Currently the Company is working closely with numerous partners.

High Growth Potential

17. The Company has held discussions with many potential customers and potential partners globally, leading to a large number of NDAs being executed and ongoing commercial discussions with the majority of these parties.

Scale up the Business

18. The platform has been technically designed to scale from the start. It is built using a serverless architecture, so that it can scale up and down on demand. Even though the volume for initial trials will be small in comparison to the size of the customers anticipated, the architecture of the solution has been built with the larger customers in mind, so that there is no need to re-build the solution due to volume.

Broader than Local Market

19. The Company has held discussions with numerous potential customers globally, leading to a number of proposals being sent and ongoing commercial discussions with the majority of these parties.

Competitive Advantages

20. The product will be the only such platform in the world. The only other competitors in Australia are legacy competitors.

Conclusion

The Company meets the eligibility criteria of an ESIC under section 360-40 for the period 1 July 20XX to 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