Private ruling: Eligible accelerator program
Date of advice: 22 November 2019
Published: January 2020
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the Accelerator Program delivered by Entity A meet the requirements of an eligible accelerator program for the purposes of item 4 of the table in subsection 360-45(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes - the Accelerator Program meets the requirements after the first cohort graduated on xxxx date.

Relevant facts and circumstances: Entity A established the program to assist primarily with the commercial and legal needs that start-ups face as they grow and evolve. Entity A has provided the Program since date x. Entity A offers the Program to all start-up companies. An open application process decides entry into the Program. Interested businesses complete an online application form, where they can upload videos and other supporting information with their pitch. Start-up applicants are assessed on a set of criteria. Details of which was provided with the ruling application. As part of the Program, each start-up receives a package that includes financial support from Entity A, access to Entity A;s office, and access to experts including professional advisors, investors, accountants, and venture capitalists. The programme culminates in a graduation event. Since its inception in xxxx the Program has run once with twelve companies graduating from the program during 20XX.

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 Further issues for you to consider | N/A

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise indicated. The Program meets the requirements of an eligible accelerator program for the purposes of item 4 of the table in subsection 360-45(1). | Detailed Reasoning - Eligible Accelerator Program: Under the 100-point innovation test used to determine if a company qualifies as an early stage innovation company (ESIC) in section 360-40, 50 points are available if a company has completed or is undertaking an eligible accelerator program (item 4 of the table in subsection 360-45(1)). The requirements of this test are that, at the test time: a) the company has completed or is undertaking an accelerator program that: i. provides time-limited support for entrepreneurs with start-up businesses; and ii. is provided to entrepreneurs that are selected in an open, independent and competitive manner; and b) the entity providing that program has been providing that, or other accelerator programs for entrepreneurs, for at least 6 months; and c) such programs have been completed by at least one cohort of entrepreneurs. Accelerators are a relatively new type of organisation. Essentially, an accelerator is a type of organisation that assists new ventures by providing accelerator programs. Accelerator programs are designed to help cohorts of new ventures with the venture process, which includes defining and building their initial products, identifying promising customer segments and securing resources (both capital and employees). They may be either for-profit or non-profit, but regardless, the programs usually provide a small amount of seed capital and working space. They offer significant networking, educational and mentorship opportunities with both peer ventures and mentors (who may be successful entrepreneurs, program graduates, venture capitalists, angel investors, or corporate executives). Accelerator programs are of fixed term and limited-duration, typically running for three to six months. In the initial stages, the structure and content of the program is likely to be common across the cohort, before diversifying to a more customised and unstructured format tailored to the needs of the individual start-ups. It is not sufficient for a program to simply meet the accepted definition of an accelerator program in order for start-ups that undertake the program to be eligible for 50 points. The program must also be an eligible accelerator program, as per item 4 of the table in subsection 360-45(1). The Explanatory Memorandum (EM) to Tax Laws Amendment (Tax Incentives For Innovation) Bill 2016 provides guidance on what is considered an eligible accelerator program for the purposes of item 4 of the table in subsection 360-45(1) when it states at paragraph 1.95: ...An eligible accelerator programme is a programme that provides time-limited support for start-ups, for which an open, independent and competitive application process is required for entry, provided the entity running that programme has been operating for at least a six month period and has provided a complete programme of this kind to at least one cohort of entrepreneurs. Accelerator programmes that cannot provide value adding support (mentorship, training, education and networks) to the accepted companies or have had no successful companies coming through the programme are unlikely to be effective accelerator programmes. The EM guidance in conjunction with the law points to five factors that an accelerator program must satisfy to be considered an eligible accelerator program. These are: i. A merit-based screening process - Entry into an accelerator program must involve a merit-based screening process, where entry into the program is determined by an open, competitive validation process. Programs that offer entry based predominantly upon payment of a fee would not qualify. ii. The company, not an individual, must complete the program - In some instances it is the founder of a company that is registered to undertake an accelerator program. In order to satisfy the requirements of subsection 360-45(1) the company itself must receive certification upon completion of the program. iii. Time-limited support - The limited duration is the characteristic that most clearly defines accelerator programs. Generally speaking, a program will run for approximately 3 to 6 months. iv. Six month minimum period - The accelerator must have been providing accelerator programs for a minimum of 6 months at the test time (when the potential ESIC issues shares to the investor). This is not limited to the particular program being considered under the 100-point innovation test, but can include any accelerator program provided by the accelerator. v. Prior completion by a cohort of entrepreneurs - To qualify as an eligible accelerator program, at least one cohort of entrepreneurs must have completed either that particular program, or another program offered by the accelerator. The term 'cohort' refers to a group or batch and is not merely one or two entrepreneurs. | Detailed Reasoning - Application to your circumstances: For the purposes of this ruling the program must satisfy two overarching requirements: 1) it is an accelerator program in accordance with the accepted definition; and 2) it is an eligible accelerator program in accordance with item 4 of the table in subsection 360-45(1). | Detailed Reasoning - Accelerator Program: Accelerators are organisations that offer a range of support services and funding opportunities for start-ups. As detailed in Entity's A documentation, their program combines the expertise, networks and resources of large organisations. They provide start-ups with guidance, mentorship, education, corporate support, co-working space access, networks and funding to underpin growth. This purpose clearly fits with the accepted characteristics of an accelerator program, being to assist cohorts of new ventures to define and build their initial products, and identify promising customer segments. The access to subject matter experts and the guidance offered under its program are further indicators of an accelerator program, since accelerator programs typically offer significant networking, educational and mentorship opportunities with both peer ventures and mentors. It is accepted that the Program meets all of the major defining characteristics of what is regarded as an accelerator program. | Detailed Reasoning - Eligible Accelerator Program: Each of the five factors that an accelerator program must satisfy to be considered an eligible accelerator program in accordance with item 4 of the table in subsection 360-45(1) will be examined in turn. | Detailed Reasoning - Merit-based screening process: For each program, start-ups apply through an open merit based process, undergoing competitive selection that results in approximately 12 progressing to complete the entity's program. This selection process does not offer entry based on payment of a fee. It is highly competitive and open to any applicant. | Detailed Reasoning - The company, not an individual, must complete the program: Only start-up businesses which are companies are eligible to participate in the Program. The agreement entered into is between Entity A and the participating company. It is accepted that companies undertake and complete Entity A's program. | Detailed Reasoning - Time-limited support: Generally, time-limited support will mean a program lasting between 3 to 6 months. The broadly accepted length of 3 to 6 months is considered indicative only. It is designed to provide guidance rather than be a definitive rule. The Company's program is conducted with in the generally accepted timeframe and the program is of a sufficiently short time period as to be intensive enough that both failure and success are accelerated. A necessary component of this process is the time-limited nature of the program. In short, the Company's program meets the characteristic of providing time-limited support. | Detailed Reasoning - Six month minimum period: Entity A has run a program for over a year. The Entity meets the requirement of having provided accelerator programs for a minimum period of six months. | Detailed Reasoning - Prior completion by a cohort of entrepreneurs: Entity A has run its Program for one year. One cohort has completed the Program. Entity A meets the requirement that it have at least one cohort of entrepreneurs previously complete one of its accelerator programs. | Detailed Reasoning - Conclusion: Entity A's program is an accelerator program according to the accepted definition. In addition the program meets the features of an eligible accelerator program according to item 4 of the table in subsection 360-45(1).