Edited version of private advice

Authorisation Number: 1052250694498

Date of advice: 16 May 2024

Ruling

Subject: Eligibility early stage innovation company

Question:

Does Company X 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 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

Early Stage Test

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

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

•         Total expenses of $xxx

•         Total income of $yyy

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

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

Company X's director is Taxpayer A.

Company X's registered office and principal place of business is situated at XXX.

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

Company X owns rights to all IP related to its technology and processes.

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 opened an investment round via a SAFE Note during MM YYYY (the test date).

Product Development

Company X is developing a software solution in the XXXX industry for consumers.

Company X is in the process of building out a technology team of experienced software engineers and developers that will be responsible for building out the platform and new technology. As well as this, Company X has a team of experienced product designers that are contracted to build out the product design and user experience/interface. A user prototype has been built by the team of designers and a base level of engineering scoping work has been completed to date in anticipation of the technology build beginning at the end of MM YYYY.

Company X has started developing a two-pronged distribution strategy of retail distribution and wholesale strategic partnerships. Company X has engaged some large consumer businesses that have scaled customer bases. The traction from these parties has been positive and the long-standing relationships of the Company X's Advisory team supports these initiatives.

Commercialisation Strategy

Company X is in the early stages of startup, so its addressable market can be described as the mainstream market. Over time, Company X intends to expand its product and addressable market into niches beyond mass market.

Company X plans to launch with over XX lenders on its platform and will expand with new integrations thereafter over time building more proprietary relationships with lenders to access a preferential service level and pricing for further experience and financial value propositions for customers.

The Director of the company has been able to secure service agreements with technology and lending services, many of which for the first time will be supporting a digital, aggregated direct to consumer platform.

High Growth Potential

Company X has significant growth potential given its potential to solve several pain points in the relatively slow to adapt XXXX industry. The seamlessness with which customers will be able to use Company X will provide an unmatched user experience.

The end to end digital, aggregated platform will take the ambiguity out of the XX experience for consumers and deliver tangible financial outcomes. The unique combination of features makes Company X highly appealing to customers and industry participants.

Company X has a high growth potential due to the innovation of these unique combination or product features together with an addressable market that is the largest financial market in Australia. The market in Australia is yet to be delivered with an end to end platform that will solve these archaic pain points for participants and therefore the product is set to be well received by market participants.

The founder believes that the Company X technology can be applied and adapted to other global financial markets.

Scale up the Business

Company X has the potential to successfully scale extremely rapidly as the large upfront cost component in building the application is supported by the founder skill set, network and advisory team. Thereafter operational costs, such as hosting scale much slower than projected income due to the exceptionally high value delivered to customers. Over time the business model allows for the business to achieve economies of scale as fixed costs as a percentage of revenue is reduced and variable cost levels are maintained resulting in strong operating margins.

Company X is planning rapid expansion on receipt of it first round of funding with the objective of delivering its minimum viable product (MVP) later in YYYY. Company X's operating leverage will rapidly increase as it onboards users, increasing market share. Company X's market share is expected to grow rapidly as its users will have an 'unfair' advantage given the dramatic empowerment through Company X's platform.

Company X believes that its highly attractive product and services will capture substantial market share, prior to any competitor response, which in turn will assist it in maintaining and improving a highly defensible position in the Australian financial market.

Broader than Local Market

Company X will launch into the Australian market on the back of the platform being developed as well as the utilising the founding team's network, relationships and connectivity in the market.

Initially, Company X will purely be an Australian focused platform servicing the Australian market that is almost $yyy in size. However, overtime the business sees no reason a localised version of the platform can't be adapted to national markets that have similar dynamics to the Australian financial market.

Competitive Advantages

Company X will provide paradigm shifting tools to borrowers looking for XXXX by providing them with new and innovative ways of scanning the market, finding suitable products, preparing data for application and managing an application through to settlement. This will deliver a substantially improved customer experience that is currently not available and very difficult to replicate.

Customers will also be drawn to the improved XXXX value propositions, high transparency and better outcomes.

When completed, Company X will be a unique product.

Company X is seeking to build and exploit structural competitive advantages.

As it stands there are no fully integrated XX originators in Australia.

Information provided

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

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

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

Company X has made an interim issue of a SAFE Note on MM YYYY to various investors to assist in funding the continued development and commercialisation of their Product.