Private ruling: Early stage innovation company eligibility
Date of advice: 7 June 2024
Published: 22 July 2024
Ruling period: DD MM YYYY to DD MM YYYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: 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? | A1: Yes.

Relevant facts and circumstances: The Early Stage Test The company is an Australian proprietary company incorporated in XXX on DD MM YYYY. For the financial year ending DD MM YYYY (re period 1), the company incurred and earned the following: • Total expenses of $xxx • Total income of $yyy 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 The company has no wholly or partly owned subsidiaries. The company is not part of an income tax consolidated group. The company's directors are AAA, BBB and CCC. The company's registered office and principal place of business is situated at XYZ. The company is not a foreign company within the meaning of the Corporations Act 2001 (Cth). 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. Founding partners Company A and Company B own a number of shares. Company A will be the company's largest shareholder with approximately xx%, with the remaining share register reflecting a small number of institutional and sophisticated investors. 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 The company is developing and commercialising the Company A's technology. The company's technology offers the potential to overcome many of the challenges of existing variable technologies by providing low-cost integrated alternatives. The company's technology overcomes these challenges by designing novel subsystems. Most modern, large scale systems utilise particular substances as a transfer and storage material. The purpose of the company is initially to progress research, development, and engineering activities to validate the technology at scale, to provide low cost overnight storage, and provide a commercially viable method of technology for industrial users. The company intends to begin construction of its first pilot project within x years and once the technology has been proven at scale, the company will work to commercially exploit the technology by developing large scale projects. Product Development Stages Currently, development activities are limited to founding shareholders conducting necessary formation activities such as: • Business planning, including technical and commercial workstreams • Engaging investors for investment into the company • Recruiting key employees and board members in preparation for company formation • Engaging with potential customers who may use the technology. The company has a number of technical development work packages to complete before the product is fully developed: These work packages are expected to be completed over the next xx months. The company will be ready to build a commercial scale system 24 months after commencement of its program. The program will commence as soon as practical after capital raise completion. The first system is expected to take xx months to construct and be operational thereafter. Commercialisation Strategy The company's innovation strategy is focused on proving the technology at a commercial scale. This includes: • Research and development activities to build, test and demonstrate key system components at industrial scales, and under real world operating environments • Secure funding to build the Pilot Project • Engage with industry and customers to build a larger pipeline of commercial projects. The company is raising seed capital to fund a ~x-y-year commercial pilot program. At the conclusion of this program, the intention is for the company to have materially all activities completed to achieve a Final Investment Decision ('FID') for the first system. High Growth Potential The company has high growth potential for the following reasons: • There is strong government and social support for consumers to adopt the company's technology. • There are currently no commercially viable technologies that can provide this technology. This places the company in a strong competitive position to grow, as it has limited competition. The company will generate growth through: • Completing the program, to demonstrate the novel technology is de-risked at scale, and show customers the effectiveness of the technology • Engaging with potential customers, such as users or project developers to build new projects using the novel technology • Exploring strategic partnerships with complementary technologies to broaden market applications and further improve the technology value proposition. The company has already received significant inbound interest to deploy its technology both in Australia and globally, once it has been proven at scale. Scale up the Business The company expects to successfully scale the business and believes it can grow to be a profitable business and has set out key technical, commercial and financial milestones to achieve this outcome. A key short-medium term milestone is the scale up and construction of a commercial scale demonstrated project. Key short term technical milestones include: • Completion of the design and construction of the technology scaled test systems • Completion of the testing of the scaled test systems • Completion of site feasibility and development works for the project • Secure additional projects in customer pipeline. The company's founding shareholders, Company A and Company B, have a track record of founding new technology ventures and growing them to be large businesses. The founding shareholders' experience is that the successful planning and execution of technical, commercial and financial milestones are the foundation to enable growth. The founding team thus have a strong track record of scaling innovative technology into successful businesses and supporting high-tech ventures to grow. Broader than Local Market The company has high potential to address a global market, for reasons including: • There is a very large international market • The company has seen positive early engagement with customers, and potential shareholders have suggested there is interest in deploying the technology globally • Countries around the world are specifying a need for these type of technologies, but there are few global producers of the technology to service this demand. The company plans to expand its presence across Australia. The company has already started engaging customers around Australia, including an active request for proposal in one state. Other activities the company will pursue to expand in Australia include: • Engaging with potential Australian joint-venture and strategic partners Competitive Advantages The company has a competitive advantage over its competitors for the following reasons: • The company has a patent protected intellectual property portfolio protecting it from infringement • The company has a superior technology solution, with superior safety, efficiency, operability, and cost • The company has a strong founding team, with a proven track record of scaling technology companies. The company is developing their technology to address a number of discrete markets and is continuing to develop their technology. The company's technology has been identified as having an international / local addressable market. 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, dated DD MM YYYY • Response to further questions provided DD MM YYYY We have referred to the relevant information within these documents in applying the relevant tests to your circumstances. 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