Private ruling: Early-stage innovation company
Date of advice: 27 May 2026
Published: 10 August 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

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)? | A1: Yes, for the period commencing DD MM 20YY until DD MM 20YY.

Relevant facts and circumstances: 1. The Company was incorporated in Australia on DD MM 20YY and registered in the Australian Business Register on DD MM 20YY. Its equity interests are not listed for quotation in the official list of any stock exchange. 2. The Company has no subsidiaries. Financial information 3. The Company's 20YY financial statement showed total expenses of $X and assessable income of $X for the year ended DD MM 20YY. 4. The Company's 20YY financial statement showed total expenses of $X and assessable income of $X. 5. The Company's financial statement for 20YY showed total expenses of $X and assessable income of $X. 6. The Company's financial statement for 20YY showed total expenses of $X and assessable income of $X. The Innovation 7. The Company's goal is to provide bio based and environmentally products. It has a construction system that aims to significantly improve on traditional products, through the integration of bio-based materials, lifecycle design and supply chain innovation. The Innovation allows customers to purchase a sustainable product, designed with minimal impact in mind. The Company has identified its ultimate market as being the global market, with its initial target being Australian markets. 8. The Company has registered the business name and owns a trademark entered on the Australian register. The product offering 9. Material innovation and development - the Company has worked in collaboration with specialised material suppliers to develop and implement bio-based materials. The Company's development process has required multiple iterations of material formulation and testing, balancing durability with biodegradability outcomes. 10. Reduction of petrochemical dependency - a core design objective of the Company is to bypass petrochemical inputs where technically feasible. 11. Construction and system simplification - simplification reduces material complexity, improves manufacturability, supports improved end-of-life outcomes and enables better integration of bio-based materials. 12. Lifecycle and end-of-life innovation - the Company is currently co-developing bio-based aftercare and product lifecycle solutions, extending the innovation beyond the product itself into a broader system. 13. Supply chain integration and transparency - the Company has developed a transparent and traceable supply chain, including sourcing materials as locally as possible to manufacturing sites, working directly with material innovators and manufacturers and maintaining visibility over component inputs and certifications. Key differentiators and competitive advantage 14. The private ruling application highlights that the Company's innovation represents a system-level redesign, rather than an incremental product improvement. This system integrates: • material innovation • product construction • lifecycle and end-of-life considerations • transparent and traceable supply chains 15. Traditional product is typically constructed using: • X or petroleum-derived synthetic materials • complex multi-component assembly • X and processes that limit recyclability • do not consider end-of-life outcomes 16. As a result, most products: • are not biodegradable • are difficult to recycle • rely heavily on petrochemical inputs • are designed with disposal as the default outcome 17. The private ruling application states that the system represents a significant improvement over existing products because it: • replaces core material inputs with bio-based alternatives • reduces component complexity and improves product • introduces lifecycle-aware design, including biodegradability and recycling pathways • integrates material science, design, and supply chain into a unified system This is not a cosmetic or branding-based improvement, but a structural and functional innovation in how the product is designed and produced. Market position 18. The application identifies the problem the Company is wishing to address as the industry polluting the planet. 19. The product has been redesigned to minimise waste - it simplifies construction to reduce waste at all stages of the product life cycle. It is made from premium natural materials. It leads the market on CO 2 emissions -made from materials sourced from mostly net-zero supply partners and paired with a direct-to-market sales channel. It has a circular lifespan - an end-of-life program including recycling, reusing and composting its natural materials. 20. The application states the Company is offering a sustainable and regenerative product cycle that closes the loop on environmental impact. The Company is transitioning to full biodegradability. Addressable market 21. The application identifies the addressable market. 22. The Company provided the document it provides to investors. 23. The document says there is lack of innovation and competitors are incapable of real change without risking their bottom line. 24. The Company is initially targeting the Australian market, with expansion planned into the X and X markets in Y2/3. They will pursue product sales through a direct-to-consumer strategy (Shopify, Facebook and Instagram), allowing them to engage directly and offer a personalised shopping experience whilst maintaining full control over brand narrative and sales process. This allows greater profit margins, less packaging (lower carbon footprint), efficient supply chain and improved returns and reverse logistics. The drop shopping model streamlines inventory management and enhances customer convenience. This minimises stockholding costs, reduces return rates, scales by demand, minimises waste and is an easy market expansion. Whilst not a primary focus initially in the domestic market, the plan includes pop-ups and strategic retail partnerships to increase brand visibility, test new markets with minimal investment risk and leverage reach and credibility of established brands. 25. The document provided to investors identifies 'multiple paths to growth', with levers of product, audience and international expansion as avenues of growth. It considers expansion from the domestic market into the X/X, then into international markets, alongside expanding the customer base and the product range. Expertise of Founders 26. Executive Team: • The Founder is an expert with a career spanning X years. • The Sourcing and Development Lead is a senior sourcing and development professional. • The Brand and Marketing Lead specialises in crafting and building brands, startups, campaigns and creative communities. 27. Team Advisors: • The CFO is a senior finance leader with X years of expertise in operations, corporate reporting, compliance, risk mitigation, strategy formulation and execution. He has worked at both a national and international level within start-ups, private equity to large listed multinational entities. • The Strategist brings almost X years of strategic and creative experience helping brands, organisations and political groups shake up their space and manage big moments of change. • The Designer is a proven designer with a global following and is an organic materials expert. • The Artist and Creative Director directs content, campaigns and experiences for clients. Commercialisation strategy 28. In the private ruling application (dated DD MM 20YY) it states: .... The Company has undertaken multi-year product development, including prototyping, material testing, and supplier integration, and has completed an initial manufacturing .... The Company has commenced commercialisation through direct-to-consumer channels, retail partnerships, and pilot programs .... The Company is currently in an early-stage commercialisation phase. .... 29. Leading up to commercialisation, the Company undertook the following steps in developing its innovation: • multi-year development of bio-based materials and construction methods • collaboration with specialised material suppliers • completion of initial manufacturing run • launch of product via direct-to-consumer channels • pilot programs • establishment of retail partnership • ongoing discussions with international distribution partners 30. The private ruling application included the following timeline titled 'Traction: X years of material, tech & design innovation': • 20YY Concept creation ­ MM - company incorporation ­ MM - capital raising ­ Design completed ­ First prototype and material testing • 20YY/YY: Product development and prototyping ­ COVID country Z shutdown ­ Branding commences ­ Consumer research and study findings ­ Capital raising (MM 20YY) ­ Trademark approved • 20YY: Pre-revenue ­ Branding completed ­ Fifth and final prototype ­ Solidify management ­ Capital raising (MM 20YY) ­ First product order ­ Digital webpage and socials ­ Establish third party logistics partner ­ Execute marketing plan ­ Pre-sale campaign • 20YY: Revenue ­ Launch ­ PR campaign 31. The private ruling application also included a 'launch timeline' as follows: • Q2 20YY: Product development and capital raising ­ Continued wear testing and product tweaking ­ Capital raising finalised ­ Supplier contracts finalised ­ Organisational structure finalised ­ Plot circular economy and product pathway • Q3 20YY: Product order and marketing plan ­ Continued capital raising ­ Product order by end of Q3 ­ Templates manufactured, materials ordered, box design ­ Develop brand content pillars, hero photography ­ E-commerce store build commences ­ Launch marketing strategy finalised • Q4 20YY: Digital and marketing ­ Complete e-commerce build ­ Drop shipping display racks delivered ­ Deploy PR and marketing strategies ­ Freight to 3PL facility ­ Presales (REVENUE) ­ Engagement strategy via workshops and presentations • Q1 20YY: Launch ­ Continued PR push ­ Focus on customer experience and customer service ­ Iron out product flaws ­ Commence work on product pipeline 32. The further information provided on DD MM 20YY, states: ...[at] the relevant test times in relation to the share allotments on X MM 20YY, X MM 20YY, X MM 20YY and X MM 20YY. ...the Company considers it was still actively developing the product for commercialisation and had not yet reached a stage where the innovation was commercially accepted or fully developed. Importantly, the Company did not make its first commercial sale until DD MM 20YY. Prior to this date, activities remained focused on preparing the innovation for launch and commercialisation. During the relevant test periods, ongoing development activities included: • iterative prototyping and refinement of construction and component integration • continued development and testing of bio-based materials and biodegradability outcomes • balancing durability requirements with lifecycle and end-of-life objectives • refinement of manufacturing, sourcing and supply chain processes • continued development of bonding techniques and material integration systems • pilot testing and market validation activities prior to first sale • development of the Company's QR-code enabled distribution and fulfilment model In addition, the Company's development activities are inherently iterative due to the evolving nature of bio-based materials and construction methods. Unlike traditional product materials, bio-based inputs continue to evolve through ongoing supplier development, requiring continued refinement of sourcing, manufacturing techniques, material integration and bonding systems. The Company therefore considers that, at the relevant test times, it remained in the process of developing the innovation for commercialisation ... Growth potential and scalability 33. The private ruling application states that the Company's business has high growth potential, supported by a scalable revenue model, large addressable market, and demonstrated pathway from early-stage commercialisation to material revenue generation. It says it has it has developed a structured commercialisation model that demonstrates a clear trajectory from initial market entry to scaled operations. The company has provided projections and says this represents a step-change in scale consistent with a high-growth consumer product business operating within a large and repeat-purchase category, with global reach. 34. The Company is already observing strong market engagement across product and brand, particularly from younger consumers who demonstrate increased awareness of environmental impact and preference for lower-impact alternatives. 35. The private ruling application included a current sales snapshot since launch showing that from DD MM 20YY until DD MM 20YY, there have been over X orders. The first sale was on DD MM 20YY. A screenshot from X shows a returning customer rate of X% and: • Gross sales $X • Discounts $X • Returns $X • Net sales $X • Shipping charges $X • Total sales $X Information provided 36. You have provided information in several documents and phone conversations in relation to the Innovation, including: a. your private ruling request dated DD MM 20YY, and application dated DD MM 20YY. b. phone conversation with Founder on DD MM 20YY and DD MM 20YY. c. supplementary information provided on DD MM 20YY, DD MM 20YY, DD MM 20YY. 37. The Commissioner has referred to the relevant information within these documents and conversations in applying the relevant tests to your circumstances. 38. The Register of Members shows allotment of shares X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY, X MM 20YY and X MM 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 360-A | Income Tax Assessment Act 1997 section 360-40

Reasons for decision: Detailed Reasoning - Question 1: All legislative references are to the ITAA 1997 unless otherwise indicated. | Summary: The Company meets the eligibility requirements of an ESIC under subsection 360-40(1) from DD MM 20YY until DD MM 20YY. | Detailed Reasoning - Qualifying Early-Stage Innovation Company: 1. Subsection 360-40(1) outlines the criteria required for a company to qualify as an Early-Stage Innovation Company (ESIC) at a particular time in an income year. This time is referred to as the test time. The criteria are based on a series of tests to identify if the company is at an early stage of its development and it is developing new or significantly improved innovations to generate an economic return. | Detailed Reasoning - The early-stage test: 2. The early-stage test requirements are outlined in detail within paragraphs 360-40(1)(a) to (d). | Detailed Reasoning - Incorporation or Registration - paragraph 360-40(1)(a): 3. To meet the requirement in paragraph 360-40(1)(a), at a particular time (the test time) in an income year (the current year) the company must have been either: i. incorporated in Australia within the last three income years (the latest being the current year); or ii. incorporated in Australia within the last 6 income years (the latest being the current year), and across the last 3 of those income years before the current year it and any *100% subsidiaries incurred total expenses of $1 million or less; or iii. registered in the Australian Business Register (ABR) within the last three income years (the latest being the current year). 4. The term 'current year' is defined in subsection 360-40(1) with reference to the 'test time'; the 'current year' being the income year in which the company issues shares to the investor. 5. A company that does not meet any of these conditions will not qualify as an ESIC. | Detailed Reasoning - Total expenses - paragraph 360-40(1)(b): 6. To meet the requirement in paragraph 360-40(1)(b), the company and any 100% subsidiaries must have incurred total expenses of $1 million or less in the income year before the current year. | Detailed Reasoning - Assessable income - paragraph 360-40(1)(c): 7. To meet the requirement in paragraph 360-40(1)(c), the company and any 100% subsidiaries must have derived total assessable income of $200,000 or less in the income year before the current year. | Detailed Reasoning - No stock exchange listing - paragraph 360-40(1)(d): 8. To meet the requirement in paragraph 360-40(1)(d), the company must not be listed on any stock exchange in Australia or a foreign country. | Detailed Reasoning - Innovation tests: 9. If the company satisfies the early-stage test, the company must also satisfy one of two innovation tests: the objective (100 point) test or the principles-based test. | Detailed Reasoning - '100-point test' - paragraph 360-40(1)(e) and section 360-45: 10. To satisfy the 100-point test the company must obtain at least 100 points by meeting the innovation criteria in the table within section 360-45. The criteria are tested at a time immediately after the relevant shares are issued. If a company satisfies this test, it does not need to satisfy the principles-based test. | Detailed Reasoning - 'Principles-based test' - subparagraphs 360-40(1)(e)(i) to (v): 11. To satisfy the principles-based test, the company must meet five requirements in paragraph 360-40(1)(e). This is tested at a time immediately after the relevant new shares are issued to the investor. 12. The company can demonstrate that it meets each requirement through existing documentation such as a business plan, commercialisation strategy, competition analysis or other company documents. The company must be able to show that tangible steps have been or will be taken in relation to each of the requirements. 13. The five requirements of the principles-based test, as outlined in paragraph 360-40(1)(e) are: i. the company is genuinely focused on developing for commercialisation one or more new or significantly improved products, processes, services or marketing or organisational methods; and ii. the business relating to those products, processes, services or methods has a high growth potential; and iii. the company can demonstrate that it has the potential to be able to successfully scale that business; and iv. the company can demonstrate that it has the potential to be able to address a broader than local market, including global markets, through that business; and v. the company can demonstrate that it has the potential to be able to have competitive advantages for that business. | Detailed Reasoning - Developing new or significantly improved innovations for commercialisation: 14. For the purposes of Subdivision 360-A, the Explanatory Memorandum to the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 ('EM') provides the following at paragraph 1.76 in relation to the definition of innovation: Implicit in the definition of innovation is the requirement that the company is developing a new or significantly improved type of innovation such as a product, process, service, marketing or organisational method. This list of various types of innovations provides flexibility for innovation companies and is adaptable to current and future innovations. The Oslo Manual, published by the Organisation for Economic Co-operation and Development (OECD) provides a description of these different types of innovations... [1] 15. The innovation being developed by the company must either be new or significantly improved for an applicable addressable market. The company's addressable market is the revenue opportunity or market demand arising from the innovation or the related business. The addressable market must be objective and realistic. 16. Improvements must be significant in nature to meet this requirement. Customising existing products or minor changes resulting from software updates, pricing strategies or seasonal changes are examples of improvements that would not be considered significant. 17. The OECD Oslo Manual defines innovations as significant changes, with the intention of distinguishing significant changes from routine minor changes. However, it is important to recognise that an innovation can also consist of a series of smaller incremental changes that together constitute a significant change. [2] 18. In discussing services innovation activity, paragraph 111 of the OECD Oslo Manual states, Innovation activity in services also tends to be a continuous process, consisting of a series of incremental changes in products and processes. This may occasionally complicate the identification of innovations in services in terms of single events, i.e. as the implementation of a significant change in products, processes or other methods. 19. The OECD Oslo Manual, in relation to defining innovative services, states at paragraph 161 that "innovations in services can include significant improvements in how they are provided (for example, in terms of their efficiency or speed), the addition of new functions or characteristics to existing services, or the introduction of entirely new services." 20. The company must be genuinely focused on developing the innovation for a commercial purpose to generate economic value and revenue for the company. This requirement draws the distinction between simply having an idea and commercialising an idea. 21. 'Commercialisation' includes a range of activities that involve the implementation or sale of a new or significantly improved innovation that will directly lead to the generation of economic value for the company. | Detailed Reasoning - High growth potential: 22. The company must be able to demonstrate that it has the potential for high growth within a broad addressable market. This refers to the company's ability to rapidly expand its business. Companies that are limited to supplying local customers will not meet this requirement. | Detailed Reasoning - Scalability: 23. The company must be able to demonstrate that it has the potential to successfully scale up the business. The company must have operating leverage, whereas it increases its market share or enters into new markets, its existing revenues can be multiplied with a reduced or minimal increase in operating costs per unit. | Detailed Reasoning - Broader than local market: 24. The company must be able to demonstrate that it has the potential to address a market that is broader than a local city, area or region. The company does not need to have a serviceable market at a national, multinational or global scale at the test time. However, it does need to show that the business is capable of addressing a market that is broader than a local market and that the business can be adapted to a broader scale in the future. | Detailed Reasoning - Competitive advantages: 25. The company must be able to demonstrate that it has the potential to have competitive advantages, such as a cost or differential advantage over its competitors which are sustainable for the business as it expands. The company can analyse what competitors in the market offer and consider whether the company has a differentiating advantage that would allow it to outperform these competitors. | Detailed Reasoning - Foreign Company test - paragraph 360-40(1)(f): 26. At the test time, the company must not be a foreign company within the meaning of the Corporations Act 2001. 27. The dictionary in section 9 of the Corporations Act 2001 defines a foreign company to mean: (a) a body corporate that is incorporated in an external Territory, or outside Australia and the external Territories, and is not: (i) a corporation sole; or (ii) an exempt public authority; or (b) an unincorporated body that: (i) is formed in an external Territory or outside Australia and the external Territories; and (ii) under the law of its place of formation, may sue or be sued, or may hold property in the name of its secretary or of an officer of the body duly appointed for that purpose; and (iii) does not have its head office or principal place of business in Australia. | Detailed Reasoning - Application to your circumstances: Test time 28. For the purposes of this ruling, the test time for determining if the Company is a qualifying ESIC will be particular dates during the income years ended 30 June 20YY, 20YY, 20YY, 20YY, 20YY or ending 30 June 20YY. Current year 29. For the purposes of subsection 360-40(1), the current year will be the year ended DD MM 20YY, 20YY, 20YY, 20YY, 20YY or ending DD MM 20YY. The income year before the current year will be the year ended DD MM 20YY, 20YY, 20YY, 20YY, 20YY or 20YY. | Detailed Reasoning - Years ended 30 June 20YY, 20YY, and 20YY: Incorporation or Registration - paragraph 360-40(1)(a) 30. As the Company was incorporated on DD MM 20YY, which is within the last 3 income years for each of the relevant years, subparagraph 360-40(1)(a)(i) is satisfied. Total expenses - paragraph 360-40(1)(b) 31. As the Company had expenses of less than $1 million in the relevant prior income years (years ended 20YY, 20YY or 20YY) paragraph 360-40(1)(b) is satisfied. Assessable income - paragraph 360-40(1)(c) 32. As the Company's assessable income in the relevant prior income years (years ended DD MM 20YY, 20YY, or 20YY) is less than $X, paragraph 360 40(1)(c) is satisfied. No stock exchange listing - paragraph 360-40(1)(d) 33. As the Company is privately owned and is not listed on any stock exchange in Australia or a foreign country paragraph 360-40(1)(d) is satisfied. | Detailed Reasoning - Years ended 30 June 20YY, 20YY, and ending 30 June 20YY: Incorporation or Registration - paragraph 360-40(1)(a) 34. As the Company was incorporated on DD MM 20YY, which is within the last 6 income years, subparagraph 360-40(1)(a)(ii) is satisfied if the incurred expenses for the last three income years before the current year is $1 million or less. 35. For the income years ended 30 June 20YY, 20YY, 20YY, 20YY and 20YY the Company's expenditure totalled less than $1 million and subparagraph 360-40(1)(a)(ii) is satisfied for the years ended 30 June 20YY, 20YY, and year ending 30 June 20YY. Total expenses - paragraph 360-40(1)(b) 36. As the Company had expenses of less than $X in the years ended 20YY, 20YY and 2025 paragraph 360-40(1)(b) is satisfied for the years ended 30 June 20YY, 20YY, and year ending 30 June 20YY. Assessable income - paragraph 360-40(1)(c) 37. As the Company's assessable income in the years ended 30 June 20YY, 20YY, and 20YY income year is less than $X, paragraph 360-40(1)(c) is satisfied for the years ended 30 June 20YY, 20YY and year ending 30 June 20YY. No stock exchange listing - paragraph 360-40(1)(d) 38. As the Company is privately owned and is not listed on any stock exchange in Australia or a foreign country paragraph 360-40(1)(d) is satisfied. Conclusion on early-stage test 39. The Company will satisfy the early-stage test for the entire years ending 30 June 20YY, 20YY, 20YY, 20YY, 20YY and the year ending 30 June 20YY, as each of the requirements within paragraphs 360-40(1)(a) to (d) have been satisfied. | Detailed Reasoning - 100-point innovation test: 40. As an alternative to satisfying the principle-based test for a qualifying ESIC, a company may be a qualifying ESIC if it has at least 100 points for meeting certain objective innovation criteria. The 100-point test is provided as an alternative innovation test providing the company with a self-assessment test. | Detailed Reasoning - Principles based test: Developing new or significantly improved innovations for commercialisation - subparagraph 360-40(1)(e)(i) 41. There are three interacting elements that needs to be addressed: a. New, significantly improved, product, process, service or marketing method or organisational method - the Innovation; b. Developing for commercialisation; and c. Genuinely focussed. 42. According to the Company, the Innovation is a bio-based and environmentally focused product construction system that aims to significantly improve the product, through the integration of bio-based materials, lifecycle design and supply chain innovation. The Innovation allows customers to purchase a sustainable product, designed with minimal impact in mind. The Company has identified its ultimate market as being the global market, with its initial target being Australian markets. 43. The Company states in the private ruling application that its product represents a significant improvement over existing products because it: • replaces core material inputs with bio-based alternatives ­ the Company's development process has required multiple iterations of material formulation and testing, balancing durability with biodegradability outcomes and integration of materials. ­ a core design objective of the Company is to bypass petrochemical inputs where technically feasible, which is not standard practice. • reduces component complexity and improves product ­ this simplification reduces material complexity, improves manufacturability, supports improved end-of-life outcomes and enables better integration of bio-based materials. • introduces lifecycle-aware design, including biodegradability and recycling pathways ­ the Company is currently co-developing bio-based aftercare and product lifecycle solutions, extending the innovation beyond the product itself into a broader system. • integrates material science, design, and supply chain into a unified system ­ the Company has developed a transparent and traceable supply chain, including sourcing materials as locally as possible to manufacturing sites, working directly with material innovators and manufacturers and maintaining visibility over component inputs and certifications. 44. The Company states in the private ruling application that this is not a cosmetic or branding-based improvement, but a structural and functional innovation in design and production. The Innovation will be the first to offer such products. That is, the Company has a 'first mover' advantage. Genuinely focussed on developing for commercialisation - subparagraph 360-40(1)(e)(i) 45. The private ruling application states the Company has undertaken: • multi-year development of bio-based materials and construction methods • collaboration with specialised material suppliers • completed initial manufacturing run • launched product via direct-to-consumer channels • pilot programs • established retail partnership • ongoing discussions with international distribution partners 46. The Company has also provided a timeline showing it has taken the following steps in developing the Innovation: • 20YY: Design completion and first prototype and material testing • 20YY/YY: Branding, consumer research, Trademark registration • 20YY: Fifth and final prototype, first product order, online presence, third party logistics partner, marketing plan and pre-sale campaign • 20YY: Launch, PR campaign 47. The Company also highlights that it has developed a transparent and traceable supply chain, including sourcing materials as locally as possible to manufacturing sites, working directly with material innovators and manufacturers and maintaining visibility over component inputs and certifications and is currently co-developing bio-based aftercare and product lifecycle solutions. 48. The timeline shows the Company worked on its prototype from 20YY until 20YY, completed its first manufacturing run and then launched via direct-to-consumer channels in 20YY. The Company is transitioning to full biodegradability and has other designs planned for diversification into other markets. 49. The Company has engaged with three customer bases and established a retail partnership and is having ongoing discussions with international distribution partners to increase sales. Conclusion on subparagraph 360-40(1)(e)(i) 50. The Company has been genuinely focussed on developing the Innovation for a commercial purpose. The Innovation will be a significantly improved product compared to existing products. 51. The information provided by the Company indicates its activities remained focused on preparing the Innovation for launch and was still actively developing the product (which had not been commercially accepted) for commercialisation up until its first commercial sale on DD MM 20YY. Up until that time, the Company's ongoing development activities included: • Iterative prototyping and refinement of construction and component integration • Continued development and testing of bio-based materials and biodegradability outcomes • Balancing durability with lifecycle and end-of-life objectives • Refinement of manufacturing, sourcing and supply chain processes • Continued development of bonding techniques and material integration systems • Pilot testing and market validation activities prior to first sale • Development of the Company's QF-code enabled distribution and fulfilment model 52. Therefore, subparagraph 360-40(1)(e)(i) will be satisfied from DD MM 20YY until DD MM 20YY (the date the Innovation was fully developed). Once the Innovation was fully developed, the Company was no longer developing the product for commercialisation and subparagraph 360-40((1)(e)(i) is no longer satisfied. High growth potential - subparagraph 360-40(1)(e)(ii) 53. The Company states in its private ruling application that its business has high growth potential, supported by a scalable revenue model, large addressable market, and demonstrated pathway from early-stage commercialisation to material revenue generation. It says it has developed a structured commercialisation model that demonstrates a clear trajectory from initial market entry to scaled operations. The company has provided projections indicating a gross profit percentage growing from X% in Y0 to X% in Y2 and beyond. 54. The Company expects the Innovation to appeal to a wide range of industries. The document provided to investors identifies 'multiple paths to growth', with levers of product, audience and international expansion as avenues of growth. It considers expansion from the domestic market into the X/X, then into international markets, alongside expanding the customer base and the product range. 55. The Company is developing the Innovation itself and through its commercialisation strategy, it hopes to foster widespread use of its product by a direct-to-consumer strategy (Shopify, Facebook, Instagram) via an on online presence. If the commercialisation strategy is successful, this may give the Company the ability to increase sales through further engagement and selective retail partnerships to enter the global market. 56. Therefore, subparagraph 360-40(1)(e)(ii) will be satisfied. Scalability - subparagraph 360-40(1)(e)(iii) 57. The documentation provided illustrates an increase in projected sales. 58. The Company is initially targeting the Australian market, with expansion planned into the X and X markets in Y2/3. Given that the Innovation will be available domestically and then globally, it is expected that the Innovation has the potential to successfully scale up its business. 59. The Company will pursue product sales through a direct-to-consumer strategy (Shopify, Facebook and Instagram), allowing them to engage directly and offer a personalised shopping experience whilst maintaining full control over brand narrative and sales process. This allows greater profit margins, less packaging (lower carbon footprint), efficient supply chain and improved returns and reverse logistics. The drop shopping model streamlines inventory management and enhances customer convenience by creating partnerships. This minimises stockholding costs, reduces return rates, scales by demand, minimises waste and is an easy market expansion. Whilst not a primary focus initially in the domestic market, the plan includes pop-ups and strategic retail partnerships to increase brand visibility, test new markets with minimal investment risk and leverage reach and credibility of established brands. 60. This operating leverage affords the Company the potential to successfully scale up its business. Therefore, subparagraph 360-40(1)(e)(iii) will be satisfied. Broader than local market - subparagraph 360-40(1)(e)(iv) 61. The Company identifies the problem it wishes to address as polluting the planet. The Company is offering a sustainable and regenerative product cycle that closes the loop on environmental impact. That is, the Company has identified its addressable market as sustainable X, initially the X category. 62. The Innovation will (initially) be targeted at the Australian markets but is intended for worldwide use. It will be released globally once it gains traction in the initial targeted markets. 63. The Company says sustainable X is 'set to soar' and the X category is 'yet to dip in' and provides figures. 64. The Innovation can be used locally and worldwide. Thus, the ultimate addressable market is on a global scale and is not confined to a local city, area or region. 65. The Company has demonstrated the Innovation has the potential to address a broader market than just the local market, including international markets. Therefore, subparagraph 360-40(1)(e)(iv) will be satisfied. Competitive advantages - subparagraph 360-40(1)(e)(v) 66. The Company identifies the problem it wishes to address as polluting the planet. 67. The document provided to investors says there is lack of innovation and competitors are incapable of real change without risking their bottom line. 68. The Company is offering a sustainable and regenerative product cycle that closes the loop on environmental impact. The Company is transitioning to full biodegradability. 69. The Innovation has the following differentiating features which may give it a competitive advantage: • redesigned to minimise waste - simplified construction to reduce waste at all stages of the product life cycle. • made from premium natural materials. • leads the market on CO 2 emissions - made from materials sourced from mostly net-zero supply partners. • direct-to-market sales channel. • circular lifespan - an end-of-life program including recycling, reusing and composting its natural materials. 70. The Company has an experienced and varied leadership cohort, across disciplines (technical, sourcing, brand and marketing, finance, strategy and design and creative) which may assist its competitiveness. 71. The Company says the product is the first of such, giving the Company the first mover advantage. 72. The Company says it is already observing strong market engagement across product and brand, particularly from younger consumers who demonstrate increased awareness of environmental impact and preference for lower-impact alternatives. 73. The Company has provided a current sales snapshot since launch showing that from DD MM 20YY until DD MM 20YY, there have been over X orders. A screenshot from X shows a returning customer rate of X% and: • Gross sales $X • Discounts $X • Returns $X • Net sales $X • Shipping charges $X • Total sales $X 74. The Company has demonstrated the potential for the Innovation to have competitive advantages within the 'addressable market'. Therefore, subparagraph 360-40(1)(e)(v) will be satisfied. Conclusion on principles test 75. The Company satisfies the principles-based test, as it satisfies the requirements within subparagraphs 360-40(1)(e)(i) to (v) for the period commencing DD MM 20YY until DD MM 20YY when the product was fully developed and was ready for sale. | Detailed Reasoning - Foreign Company Test: 76. As the Company was incorporated in Australia it is not a Foreign Company and paragraph 360-40(1)(f) is satisfied. Conclusion 77. The Company meets the eligibility criteria of an ESIC under section 360-40 for the period commencing DD MM 20YY until DD MM 20YY when the Innovation was fully developed and was ready for sale. [1] See Explanatory Memorandum to the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016, paragraph 1.76. [2] OECD Oslo Manual, paragraph 124 and paragraph 151.