Edited version of private advice

Authorisation Number: 5010103046926

Date of advice: 16 July 2024

Ruling

Subject: Early stage innovation company

Question

Did Company A meet the requirements to be an early stage innovation company under subsection 360-40(1) of the Income Tax Assessment Act 1997[1] for the period DD MM YYYY to DD MM YYYY?

Answer

Yes.

This ruling applies for the following periods:

DD MM YYYY

DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

Company A

1.    Company A ('the company') is an Australian company incorporated in MM YYYY. It had no wholly owned subsidiaries before DD MM YYYY.

2.    The company issued shares on five dates in the YYYY and YYYY calendar years: DD MM YYYY, DD MM YYYY, DD MM YYYY, DD MM YYYY, and DD MM YYYY.

3.    The 'test times' for determining whether the company is an Early Stage Innovation Company are therefore DD MM YYYY, DD MM YYYY, DD MM YYYY, DD MM YYYY, and DD MM YYYY.

Substituted Accounting Period

4.    The company applied for a substituted accounting period (SAP) in its first year after incorporation. The SAP corresponds with the calendar year. The transitional period was from DD MM YYYY to DD MM YYYY and, as an early balancer, that corresponded with the financial year ended DD MM YYYY. Its subsequent SAP was DD MM YYYY to DD MM YYYY, which corresponded with the financial year ended DD MM YYYY.

5.    The definition of an 'income year' has the basic meaning given by subsections 4-10(2), 9-5(2) and section 995-1. For an entity that adopts a SAP in place of a particular income year, its income year is its SAP.

Early Stage Test

6.    The company met most of the requirements of subsection 360-40(1), to be an early stage innovation company, at each of the test times because the company:

•         was incorporated in Australia within the last three income years;

•         had not more than $1 million of total expenses or more than $200,000 of total assessable income in any of its earlier income years;

•         had never had its equity interests listed for quotation in the official list of any stock exchange, either in Australia or a foreign country;

•         had never been a foreign company within the meaning of the Corporations Act 2001 (Cth).

7.    Furthermore, the company has met the requirements of paragraph 360-40(1)(e) for the reasons set out below.

Product Development

8.    The company has developed an ecommerce xxx service. This service delivers a multi-tenant, all-in-one digital xxx solution designed for regulated xxx institutions. The software streamlines tasks such as onboarding, xxx screening, xxx monitoring, xxx routing and account management in one digital xxx management tool.

9.    The company provides an integrated virtual xxx technology solution that supports different segments of business xxx, a core xxx system solution, and a system xxx solution. Additionally, it provides a social xxx business platform.

10.  These services aim to enhance operational efficiency, increase profitability, accelerate growth, and ensure compliance. The services are intended to assist xxx institutions fulfill their mandates with their regulators for xxx inclusion and regulatory compliance.

11.  The company has built and commercialised five products to date.

12.  Product 1, the all-in-one open architecture solution designed to extend and adapt to any legacy system. It has three key features. First, there are endless integrations, over 80 native integrations including xxx and xxx plus custom on-demand. Second, this product is configurable at every level to meet every jurisdictional demand and opportunity whilst reducing Information Technology costs with open architecture technology. Third, this product is all in one, and provides seamless harmony across every aspect of the orchestration.

13.  Product 2, the xxx silo-breaker. This is a fully customisable, digital-first experience for web and mobile xxx. It is available to all customer segments, across all channels, digitally and offline.

14.  Product 3, this is the xxx engine room. The instant, cloud-based, fully scalable ledgering system for unlimited accounts tailored to jurisdiction. It provides for real-time reporting.

15.  Product 4 provides end-to-end payment operations. A powerful all-in-one, low-code orchestration solution across borders, currencies, channels, and instruments.

16.  Product 5 is the customer acquisition speed-dial. It provides for complete onboarding with fully configurable 'Know Your Customer' and 'Know Your Business' functions, customised risk-scoring, biometrics, and integrations.

Product Development Stages

17.  The company has undertaken the following activities to develop its products:

•         Continued upgrades to the technology platform, including the addition of new modules for risk management and xxx screening.

•         Focus on improving user experience and adapting to productisation dockers for streamlined deployment.

•         Conduct customer-centric approach, incorporating user experience to refine and improve the products.

•         Ensuring the products are up to date with competitors by following market trends and features.

•         Technology upgrades to the platform, including the introduction of new modules focused on risk management and xxx screening. These enhancements aimed to bolster the platform's capabilities and compliance standards.

•         Developed and enhanced mobile applications with upgrades to Android and iOS capabilities, this is to ensure user experience optimisation and functionality improvements.

•         Initiatives such as quality assurance automation and robotic process automation were implemented to streamline internal processes and enhance operational efficiency.

•         The company prioritised technological advancements, focusing on integration with third-party systems. These developments aimed to improve deployment speed, scalability, and interoperability.

•         Integration and compatibility improvements with third-party systems for seamless interoperability.

Commercialisation Strategy

18.  The company has undertaken the following to commercialise its products:

•         By establishing the product overseas, specifically xxx regions. The company's first key client is from the xxx and from there, they were able to improve and refine the products through user experience. This exploits the product to generate economic value and revenue for the company.

•         The implementation of the product internationally helps provide a significantly improved innovation that will generate economic value.

•         Secured significant interest overseas and plan to expand internationally.

19.  The software's technology flexibility at an efficient price point stands out from its competitors (strategic while developing the product for commercialisation).

20.  The company's software and products are built for scalability, as its clients can range from small to large without significant increases in operation costs.

High Growth Potential

21.  The company has succeeded with their product overseas in the xxx before coming to the Australian market. There has been high growth potential because at the time they were able to expand internationally.

22.  The company has a global outlook and has designed their software to comply with all jurisdictions and to be compliant with the internationally recognised standard for the xxx industry.

23.  The company's technology has capability to increase xxx inclusions by allowing institutions to digitise operations aligns with global trends, contributing to the high growth potential means that there is capacity to expand into the new markets.

Scale up the Business

24.  The company has scaled up its business as it has built and improved its profit margin whilst keeping minimal operation costs as they only spend additional expenses on product development and expansion.

25.  The board of directors combine their experience and knowledge in xxx services, business network, web design and application development to build the products whilst keeping time and cost low.

26.  The company has expanded their products internationally and developed products that can adapt and comply with the internationally recognised xxx industry standards.

27.  The company has successfully scaled its business as it is already secured significant interest overseas.

28.  The company has a global expansion roadmap with plans to showcase the company's strategic approach to scaling its business globally.

29.  The company's software extends beyond traditional xxx spheres. An illustrative example is its application in government operations, facilitating the efficient management of social fund disbursements.

Broader than Local Market

30.  The company's products have potential application beyond just the local market. This can be seen at the test times, when the products were used in the xxx region, which occurred before the current focus on the Australian market.

31.  The company signed the first xxx customer, a xxx in the xxx. This marked the company's entry into the xxx market. This milestone provided valuable insights and experience for further market penetration. The company focused on localising its offerings to meet specific regional requirements.

32.  The company is also targeting xxx and xxx. The nature of the ecommerce xxx service means that the company's product can be marketed beyond just the local market.

33.  The company's products are broader than the local market as the software has been designed to comply with all jurisdictions and compliant with the international recognised standard for the xxx industry.

Competitive Advantages

34.  The company has a competitive advantage due to their flexibility and low cost compared to its competitors.

35.  The flexibility and low cost provide unique benefits to the consumer as the product can adapt and comply to different jurisdictions.

36.  These products are to resolve issues that current xxx systems have, such as:

•         Increased regulations;

•         Legacy systems;

•         Inflation and market turbulence;

•         Heightened user expectations;

•         xxx and

•         xxx adoption.

Information provided

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

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

•         Response to further questions provided DD MM YYYY.

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

CONCLUSION

The company meets the eligibility criteria of an Early Stage Innovation Company under section 360-40(1).

[1] All legislative references in this private ruling are to the Income Tax Assessment Act 1997 unless stated otherwise.