Edited version of private advice

Authorisation Number: 1052338101767

Date of advice: 29 November 2024

Ruling

Subject: ESIC - Accelerator program

Question 1

Does the program delivered by Company A meet the requirements of an eligible accelerator program for the purposes of item 4 of the table in subsection 350-45(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes

This ruling applies for the following periods:

30 June 20XX

30 June 20XX

30 June 20XX

The scheme commenced on:

30 June 20XX

Relevant facts and circumstances

Company A is an Australian registered company. Company A has provided the program since YYYY and offers this program to Australian industry start-ups.

The program is a xxx week program that supports XX start-ups each year, with the XX cohort of XX completing the program in MM YYYY. Application for the XX cohort of XX startups will open in MM YYYY, start in MM YYYY and conclude in MM YYYY. Company A helps start, grow, scale, and connect companies within their industry.

Participants are selected via an application process which is judged against set selection criteria that include an examination of stage, growth potential and early traction or customers. The selection panel is an independent committee made up of industry X, industry X and industry experts.

In the last XX years, XX startups in four cohorts have successfully completed the program.

The program is delivered in person at xxx, xxx xxx.

Company A does not take equity in the selected start-ups, but provides $XX of in-kind support by way of:

•                     Free coworking space with desks and facilities for teams.

•                     Personalised connections to leaders and founders within industries.

•                     Weekly mentoring sessions from prominent entrepreneurs & experts.

•                     Expert-led workshops from industry experts and specialised coaches.

•                     Weekly expert coaching from industry experts and specialised coaches.

•                     Professional branding help, including logo, brand guide and development.

•                     Partner perks from xxx, xxx and xxx.

•                     Exposure and connections to local and international investors.

The program culminates in a demonstration day, which for the program starting in MM YYYY will be on DD MM YYYY. Usually around xxx participants attend.

The program has xx mentors, coaches, and workshop facilitators. The mentors and coaches of future the programs may differ from those used previously but they will have a similar level of experience and skill.

The program's main partners are the xxx, xxx and xxx.

Accelerator program

Under the 100-point innovation test used to determine if a company qualifies as an early stage innovation company (ESIC) in section 360-40 of the Income Tax Assessment Act 1997 (ITAA 1997), 50 points are available if a company has completed or is undertaking an eligible accelerator program (item 4 of the table in subsection 360-45(1)).

Paragraph 1.95 of the Explanatory Memorandum (EM) to Tax Laws Amendment (Tax Incentives For Innovation) Bill 2016 provides guidance on what is considered an eligible accelerator program for the purposes of item 4 of the table in subsection 360-45(1):

...An eligible accelerator programme is a programme that provides time-limited support for start-ups, for which an open, independent, and competitive application process is required for entry, provided the entity running that programme has been operating for at least a six month period and has provided a complete programme of this kind to at least one cohort of entrepreneurs.

The EM guidance in conjunction with the text of item 4 of the table in subsection 360-45(1) points to five factors that an accelerator program must satisfy to be considered an eligible accelerator program. These are:

•                     A merit-based screening process - Entry into an accelerator program must involve a merit-based screening process, where entry into the program is determined by an open, competitive validation process. Programs that offer entry based predominantly upon payment of a fee would not qualify.

•                     The company, not an individual, must complete the program - In some instances it is the founder of a company that is registered to undertake an accelerator program. In order to satisfy the requirements of subsection 360-45(1) the company itself must receive certification upon completion of the program.

•                     Time-limited support - The limited duration is the characteristic that most clearly defines accelerator programs. Generally speaking, a program will run for approximately 3 to 6 months.

•                     Six-month minimum period - The accelerator must have been providing accelerator programs for a minimum of 6 months at the test time (When the potential ESIC issues shares to the investor). This is not limited to the particular program being considered under the 100-point innovation test but can include any accelerator program provided by the accelerator.

•                     Prior completion by a cohort of entrepreneurs - To qualify as an eligible accelerator program, at least one cohort of entrepreneurs must have completed either that particular program, or another program offered by the accelerator. The term 'cohort' refers to a group or batch and is not merely one or two entrepreneurs.

Company A and the program

Considering these features in relation to Company A and the program:

•                     Merit-based screening process - Company A required potential participants to enter into an application and selection process in respect of their program.

•                     The company, not an individual, must complete the program - The program is tailored to accept up tot wo founders from each start-up. However, the companies must also be enrolled in and complete the program.

•                     Time-limited support - The program runs for xx weeks and ends on the presentation day. One of the participants may then begive a year of coworking and business support via a membership with Company A.

•                     Prior completion by a cohort of entrepreneurs - The program was launched in YYYY, and xx startups have completed the program.

Conclusion

In respect of the YYYY, YYYY and YYYY programs, on the basis that those programs will operate in a fashion consistent with what is outlined above, the specific requirements of item 4 of the table in subsection 360-45(1) will be satisfied. Therefore, Company A's program will be an eligible accelerator program under item 4 of the table in subsection 360-45(1).

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 360-A

Income Tax Assessment Act 1997 section 360-40

Income Tax Assessment Act 1997 section 360-45