Edited version of private advice

Authorisation Number: 1052359143485

Date of advice: 7 March 2025

Ruling

Subject: ESIC Eligibility

Question 1

Does Company X (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 periods DD MM YYYY to DD MM YYYY and DD MM YYYY to DD MM YYYY?

Answer 1

Yes.

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY (Period 1)

DD MM YYYY to DD MM YYYY (Period 2)

The Scheme commences on:

DD MM YYYY

RELEVANT FACTS AND CIRCUMSTANCES

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Early Stage Test

Company X is an Australian proprietary company incorporated in XXX on DD MM YYYY.

Company X is a privately owned company and operates on a stand-alone basis.

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

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

For the financial year ending DD MM YYYY (re Period 1), Company X incurred and earned the following:

•                     Total expenses of $xxx

•                     Total income of $yyy

For the financial year ending DD MM YYYY (re Period 2), Company X incurred and earned the following:

•                     Total expenses of $xxx

•                     Total income of $yyy

Company X's issued shares to new investors in the financial year ended DD MM YYYY (Period 2), to assist in funding the continued development and commercialisation of the business.

Background Facts

The Company's founder and director is an Australian tax resident.

The Company's registered office is situated at L1.

The Company's principal place of business office is situated at L2.

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

Product Development

Company X is focussed on developing a globally accessible XX based technology to support ownership of X industry assets.

This will be achieved by the Company developing own business model that includes integration of XX and AI with industry solutions.

The Company also expects to develop a unique XX XX XX.

Through the creation of its technology, the Company expects to help scale projects within its industry at a much faster rate than traditional financial models and help enable real time trading in X industry.

This will democratise access to the industry's market, allowing new participants to invest in the market at a very low cost.

Product Development Stages

Company X plans to engage in the development of their product as follows:

•                     Product Development Stage

­        Feasibility studies

­        Initial seed-funding: The Company has successfully managed to source the initial seed funding required to develop part of the detailed design through founder capital contributions and initial investor seed funding

­        Develop a single high quality X industry asset: The Company is currently in the stage of negotiating with potential buyers.

­        Operation of a profitable asset in a state in Australia by MM YYYY

­        Development of the Company's XX technology.

•                     Optimisation and expansion stage

­        Establish data feeds: The Company expects to leverage third party data/Internet of Things (IOT) and AI/Machine Learning (ML) to help establish data feeds

­        Develop trading platforms: The Company intends to develop and train an AI model fed by specific sources

­        Invest in other relevant industry assets: The Company will continue to expand its operations through the development of other assets integral to their product.

•                     Scaling and Diversification stage

­        Scaling of assets: The Company would further scale and diversify their asset portfolio within X industry.

­        Further improvements to XX technology: The Company expects to continuously invest in XX technology to create an innovative business.

­        Scaling revenue: This is expected to be achieved by unlocking revenue with transaction fees, adding profitability and liquidity for market making.

Commercialisation Strategy

The commercialisation of Company X's business model would be achieved through the launching of the Company's technology enabling investors across the globe to invest.

Whilst this would enable investors globally to invest in the industry's resources, the proceeds will be reinvested rapidly into developing additional infrastructure while reducing capacity degradation.

This would enable the Company to scale their projects much faster than traditional financial models which often demand significant upfront capital investment and longer lead times.

Moreover, the use of the Company's own technology will aid increased liquidity and demand for its product.

High Growth Potential

Feasibility studies conducted have generated promising data on the high growth and Internal Rate of Return (IRR) associated with Company X's business model.

This is further leveraged by the Australian Government and society at large promoting the development of the industry.

The Company expects to continue to grow and expand by developing their product to be compatible with high tech software and systems, and thus realise profit.

Scale up the Business

Company X will scale up their business through the development of their XX technology, enabling investors to invest in a high-tech asset developed by the Company.

The Company has already successfully sourced the seed funding required to fund their initial detailed design, and will continue to scale up the business by reinvesting the funds raised through the proceeds generated from their XX technology to invest and eventually expend towards other resources and projects.

Broader than Local Market

The launching of the Company X's XX technology would enable the Company to access global investors from the very outset.

The XX technology will enable investors to invest in X industry assets in wholesale markets, and encourage more frequent market participation.

Further, with the XX technology being backed by AI, the Company is positioned to provide a transparent and verifiable mode of trading in the industry's assets in real time.

Competitive Advantages

Company X expects to gain a competitive advantage by differentiating themselves as the global market maker for its industry, enabled by the use of their XX technology.

The XX technology will enable the Company to create a virtualised model of the asset thus achieve significant cost advantages over their competitors.

By combining various technologies, the Company will be able to differentiate their products while offering more value by increasing liquidity and investment, and speeding up the growth of its industry.

Information provided

You have provided a number of documents containing detailed information in relation to the company's technology, including Private Binding Ruling (PBR) Application form dated DD MM YYYY with a detailed attachment.

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

Conclusion

The company meets the eligibility criteria of an ESIC under section 360-40 for the period DD MM YYYY to DD MM YYYY and 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