Edited version of private advice

Authorisation Number: 1052353496710

Date of advice: 19 February 2025

Ruling

Subject: Early stage innovation company eligibility

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 period XX September 20XX to 30 June 20XX?

Answer 1

Yes

This ruling applies for the following period:

01 July 20XX - 30 June 20XX

The scheme commenced on:

01 July 20XX

Relevant facts and circumstances

1.            The Company was incorporated in Australia on XX Date.

2.            The Company has no subsidiaries.

3.            The Company did not earn assessable income for the financial year ending XX June 20XX.

4.            The Company issued shares in the income year ending XX June 20XX.

5.            The Company's shares are not listed for quotation in the official list of any stock exchange, either in Australia or a foreign country.

Background

6.            The Company is developing an innovative digital product.

7.            The key product offerings and underlying technology used in and being developed by the Company is owned by the Company, including the foreground and background intellectual property (IP).

Development of a new or significantly improved product and/or service

8.            The Company is developing a Platform, that was built with security in mind from the bottom up using modern secure cloud enabled technology.

9.            The Platform comprises a multi-tenanted stack with the option to extend to distributed nodes in the future.

Developing for commercialisation

10.         The idea was a proof of concept (POC) undertaken in 20XX.

11.         In the 20XX financial year, The Company built upon the core Platform to implement new features in the application and commenced the design and build of the core components of the Company's Platform.

12.         The focus for the innovation in 20XX was mostly about engineering the product and market fit for the Platform.

13.         In 20XX the Company will focus on growth and investment in people & processes.

14.         The Company will retain the IP and commercialise the innovation they are developing.

High growth potential and scalability

15.         The innovation has high growth potential and the potential to scale up the business successfully.

16.         The Company will evaluate the success of the work through internal technical and functional testing, as well as user testing and demonstrations.

17.         The Company has already attracted the attention of major clients in Australia.

18.         The Company has current sales pipeline and key strategic partner contracts signed.

19.         At the conclusion of the 20XX income year, The Company assembled a solution to provide a platform and application that the market agrees is acceptable. With further work during early 20XX income year, the Company is anticipating initial launch in the first half of 20XX income year.

Broader than local market

20.         Through extensive global research and consultations with world-class experts in the field, The Company concluded that there are no solutions that can be leveraged nor guide the success of the experiments.

21.         The challenge in Australia is replicated in most other economies around the world and the Company is looking to scale out once they have established a base in Australia. The Global Total Addressable Market is estimated to be around $XX.

Competitive advantages

22.         Part of the Company's competitive advantage is that they are developing a product that is needed in the Australia market.

23.         Similar competitors also exist globally but can only provide applications with limited capabilities.

24.         With the cost of entering the market, it will be extremely difficult for competitors to enter the market.

25.         The Company has assembled a solution to provide a platform and application that the market agrees is acceptable.

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

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.