Edited version of private advice

Authorisation Number: 1052238771692

Date of advice: 9 April 2024

Ruling

Subject: Early stage innovation company eligibility - 100 point innovation test

Question:

Does Company X meet the Early Stage Test requirements in paragraphs 360-40(1)(a), (b), (c) and (d) of the Income Tax Assessment Act 1997 ('ITAA 1997') for the period DD MM YYYY to DD MM YYYY?

Answer:

Yes

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY

The Scheme commences on:

DD MM YYYY

RELEVANT FACTS AND CIRCUMSTANCES

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Early Stage Test

1.      Company X is an Australian proprietary company incorporated in XXX on DD MM YYYY.

2.      For the financial year ending DD MM YYYY, Company X incurred and earned the following:

•           total expenses of $xxx

•           total income of $yyy

3.      Company X'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.      Company X has no wholly or partly owned subsidiaries. Company X is not part of an income tax consolidated group.

5.      Company X's directors are AAA, BBB and CCC.

6.      Company X's registered office is situated at XXX.

7.      Company X's principal place of business is situated at YYY.

8.      Company X is not a foreign company within the meaning of the Corporations Act 2001 (Cth).

9.      The 'test time' for determining if Company X is a qualifying ESIC, will be upon the issue of qualifying shares on a particular date or dates on or after DD MM YYYY, and on or before DD MM YYYY. Company X issued ordinary shares on DD MM YYYY. Company X proposes to issue further new shares to various investors to assist in funding the continued development and commercialisation of their Product.

Product Development

10.   Company X is developing an intelligent motorised system, which stimulates the growth of specific ecosystems, which in turn, sequesters a particular gas from the atmosphere.

11.   In this development project, Company X aims to develop a novel system that is both economical and environmentally conscious, with the following objectives:

•           integration of onboard sensors and novel electronic control systems to ensure continuous and safe operation

•           integration of operation and user software, and algorithms to automate some of the operational and safety processes, and

•           structural redesign of the hardware system to refine process efficiency and hosting ecosystem safety

12.   The core activity is the experimental development of a system integrated with sensors, electronics and software control systems.

13.   A supporting activity is the development of dependent architectural subsystem components for the system, and experimental resourcing management and design.

'100 point Innovation Test' - paragraph 360-40(1)(e) and section 360-45

14.   Company X has elected to apply under the 100 point Innovation Test in subsection 360-45(1) of the ITAA 1997 for ESIC eligibility. The table contained there allocates a different number of points for various innovation criteria.

Information provided

15.   Company X have provided a number of documents containing detailed information in relation to Company X's Product, including:

•           Private Binding Ruling ('PBR') Application, dated DD MM YYYY

•           Response to further questions provided DD MM YYYY

•           Details relevant to the 100 point Innovation Test requirements in subsection 360-45(1)

16.   We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

17.   Company X has issued and proposes to issue further new shares to various investors to assist in funding the continued development and commercialisation of their Product. Company X has issued ordinary shares to members on DD MM YYYY and DD MM YYYY.

Assumption(s)

Not applicable.

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

Further issues for you to consider

'100 Point Innovation Test' - paragraph 360-40(1)(e) and section 360-45

18.   To satisfy the 100 point Test, Company X must obtain at least 100 points by meeting the innovation criteria in the table within section 360-45 of the ITAA 1997. The criteria are tested at a time immediately after the relevant shares are issued. If Company X satisfies this test, it does not need to satisfy the principles-based test. Company X can choose to self-assess that it has the points mentioned in an item, in the table within section 360-45 based on evidence available to the company.