Edited version of private advice

Authorisation Number: 1052354541209

Date of advice: 28 January 2025

Ruling

Subject: Early-stage innovation company 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 period:

DD MM YYYY to DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

Background Facts

1.    The Company is a proprietary company incorporated in Australia on DD MM YYYY.

2.    The Company is not part of an income tax consolidated group and is a single company with no wholly owned subsidiaries.

3.    The Company's directors are Person X and Person Y.

4.    The Company's principal place of business is situated in a state or territory in Australia.

5.    For the prior financial year ended DD MM YYYY, the Company incurred total expenses of $1 million or less and earned assessable income of $200,000 or less.

6.    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.

7.    The Company issued ordinary shares to investors during the financial year ended DD MM YYYY.

8.    The Company owns the intellectual property (IP) it has developed and will develop in relation to its product.

Product Development

9.    The Company is actively focused on the research, development, and commercialisation of a scientifically formulated product.

10.    The Company has undertaken an extensive program of research and development. Details of market research and scientific research undertaken by the Company was provided.

11.    The Company is continually advancing its product, including the development of new variations tailored for specific consumer needs.

The addressable market

12.    The Company identified its initial market focus and opportunities to create a new market.

Commercialisation Strategy

13.    From incorporation, all central activities of the Company have been conducted with the intention of developing its innovative product for commercialisation.

14.    The Company's commercialisation strategy is reflected in the company's Business Plan comprising comprehensive sales and marketing strategies for commercially exploiting its product, and an operational plan featuring activities that will be undertaken to 'bring their product to market'.

High Growth Potential

15.    The Company operates within a fast-growing market sector. According to market research, the global market, valued at $X billion in 20XX, is projected to grow to $X billion by 20XX.

16.    This growth is driven by consumer trend. The Company's innovative product, which aligns with the consumer trend, has significant market potential.

17.    The Company's product allows it to cater to a broad consumer base.

18.    By strategically selecting the right sales channels and partnering with reputable retailers, the Company aims to position itself as a leading provider of innovative solutions in the particular market. This diverse and comprehensive sales strategy will maximise brand exposure, drive sales growth, and establish the Company as a trusted and sought after choice for meeting consumer needs.

19.    The financial projections of the Company show high growth potential and net profit in Year X.

Scale up the business

20.    The Company has a scalable business model with clear potential for growth. The Company has secured strong partnerships with manufacturing and distribution networks, ensuring it can meet increased demand without compromising product quality.

21.    The Company's robust supply chain management system is designed to handle rapid growth efficiently, supporting the company's ability to scale its operations as the business expands.

22.    The Company has raised substantial pre-seed investment funding which provides a solid financial foundation to support its growth objectives. This funding is being strategically allocated to key areas such as marketing, product development, and operational expansion, ensuring that the company is well prepared to scale.

23.    By maintaining a focus on customer-centric feedback, data driven product refinement, and continuous improvement, the Company is positioned for sustainable growth in both local and international markets.

Broader than Local Market

24.    The Company is strategically positioned to expand into global markets. The Company's product caters to a wide range of identified consumers.

25.    The Company's scalable business model, supported by its adaptable supply chain, ensures that the company can efficiently meet growing international demand.

26.    The Company is actively pursuing partnerships with international distributors and retailers to expand its market reach, while also leveraging e-commerce platforms to ensure its product is accessible globally.

27.    The Company complies with international regulatory standards for the relevant industry which will enable it to successfully enter new markets and meet the diverse needs of global consumers.

Competitive Advantages

28.    The Company's product is designed to fill a gap in the particular market by offering a solution that makes it suitable for a broad demographic.

29.    Current similar products on the market make them unsuitable for certain consumers. The Company's product positions it as a preferred and more inclusive alternative to conventional products.

30.    The Company provided detailed analysis of key competitors in the domestic and international market.

31.    The Company detailed competitive advantages that distinguish it in the particular market including those relating to:

•                     design

•                     science-backed development

•                     sustainability

•                     brand positioning and strategic partnerships

•                     scalability and operational efficiency

•                     first mover advantage

Information provided:

1.    You have provided documents containing detailed information in relation to the Company's product including:

•                     Private ruling application dated DD MM YYYY.

•                     Response to request for information.

•                     Business Plan, Pitch Deck, Share Registry extract.

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

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