Edited version of private advice

Authorisation Number: 1052342732507

Date of advice: 12 December 2024

Ruling

Subject: ESIC Eligibility

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 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

The Early Stage Test

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

2.      For the financial year ending DD MM YYYY (re period 1), the company incurred the following expenses and had the following assessable income:

•                     Total expenses of $xxx

•                     Total assessable income of $yyy

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's registered office and principal place of business is situated at XYZ.

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 a particular date or dates on or after DD MM YYYY, and on or before DD MM YYYY. The company is currently in the process of raising seed capital and expects to sell shares up to MM YYYY.

8.      The company will be the sole vehicle driving all technology commercialisation activities. This includes employing dedicated personnel who will manage R&D, engineering, manufacturing, and commercial priorities.

Product Development

9.      The company is developing and commercialising the technology.

10.      The company's technology offers the potential to overcome many of the challenges of existing variable technologies by providing low-cost integrated alternatives.

11.      The Company has demonstrated that it has taken tangible steps to identify a gap in the market, to create an innovative product to fill the gap in the market and to commercialise the innovation to generate revenue.

12.      The Company is 'genuinely focussed on developing new or significantly improved innovations for commercialisation'.

Product Development Stages

13.      The Company is undertaking financing activities, seeking non-dilutive capital and other capital sources to fund development.

14.      The Company has been developing a prototype.

15.      The Company's technical development pathways include serval phases.

16.      The Company has developed a plan to validate its technology at scale, enabling commercial production by the year 20ZZ.

High Growth Potential

17.      The Company demonstrates that its innovation has the potential for high growth within a broad addressable market.

Scale up the Business

18.      The Company's addressable market includes both the Australian market and overseas markets, therefore, there is potential to successfully scale the business. Although revenue projections are not quantifiable at the moment, if the Company is able to capture a small portion of market share over the next 10 years, revenue would be significant.

Broader than Local Market

19.   The Company demonstrates that its innovation has the potential for high growth within a broad addressable market, its ultimate addressable market being both Australian and global markets. The Company, therefore, addresses a broader market than just the local market and is not confined to a local city, area or region. The Company's market can clearly be expanded to a broader market in the future.

Competitive Advantages

20.      The Company has demonstrated the potential for it to have competitive advantage within the market, The company is developing their technology to address a number of discrete markets and is continuing to develop their technology.

Information provided

21.      You have provided a number of documents containing detailed information in relation to the company's technology, including:

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

•                     Response to further questions provided DD MM YYYY

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

23.      The company proposes to issue new shares to various investors to assist in funding the continued development and commercialisation of their technology.

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

CONCLUSION

The company meets the eligibility criteria of an ESIC under section 360-40 for the period DD MM YYYY to DD MM YYYY or the date when their technology has been fully developed and is ready for client use, whichever occurs earlier.

Other references (non ATO view)

Explanatory Memorandum to the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Key words

Early Stage Innovation Company

Tax incentives for Early Stage Investors

Early Stage Test

Principles Based Innovation Test