Edited version of private advice

Authorisation Number: 1052326522710

Date of advice: 31 October 2024

Ruling

Subject: Early stage innovation company

Question 1:

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 income year ended 30 June 20XX?

Answer 1:

Yes

This ruling applies for the following periods:

Income year ended XX June 20XX

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

Early stage test

1.            The Company is an Australian proprietary company incorporated in Australia on XX MM YYYY.

2.            Its equity interests are not listed for quotation in the official list of any stock exchange in Australia or a foreign country, nor will they be listed at any time up to and including 30 June 20XX.

3.            In the income year ended 30 June 20YY, the Company had nil trading activity.

Background facts

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

5.            The key personnel of the Company have signed non-disclosure agreements.

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

7.            The 'test time' for determining if the Company is a qualifying ESIC, will be upon the issue of qualifying shares on or after 1 July 20YY, and on or before 30 June 20XX.

8.            The Company issued new shares in the income year ended 30 June 20XX.

Product development

9.            The Company is developing an innovation.

10.         The Company has identified its immediate addressable domestic market, with a view to expand into international markets (should the product prove to be successful in the domestic market).

Product development stages

11.         A timeline of the work already completed and milestones in development of the innovation has been provided.

12.         The Company needs to build a more appropriate technology platform for the innovation.

Commercialisation strategy

13.         The Company has detailed its commercialisation strategy with an initial offering. This initial offering will be used as a 'beta' test to gather feedback on the product.

14.         Following this phase, the final product will be offered to the broader public, utilising various marketing strategies to reach the target market. Marketing materials will highlight the innovation's key differences compared to competitors.

High growth potential

15.         There is currently no identical existing product to service this growing market. The Company has identified high growth potential through their analysis of the target market.

Scale up the business

16.         Initial investments into technology will improve user experience, maintain efficiency and reduce overheads. These costs are expected to scale proportionally as the Company grows but will be offset with increased revenue making the product scalable.

Broader than local market

17.         If the Company proves successful in the Australian market, the Company will aim to expand into international markets, adapting to local preferences as needed.

Competitive advantages

18.         The Company's marketing materials highlight the unique features of the product and how it is different from its closest competitors.

19.         The Company is also taking steps to protect innovation and their first mover advantage by protecting intellectual property (IP).

20.         Current potential competitors in this space do not offer the same features as the Company and do not target the same audience.

Conclusion

21.         The Company meets the eligibility criteria of an ESIC under section 360-40 for the income year ended 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