Private ruling: Early-stage innovation company eligibility
Date of advice: 20 April 2026
Published: 10 August 2026
Ruling period: For the year ending 30 June 20XX
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Will the Company be an Early-Stage Innovation Company (ESIC) under subsection 360-40(1), for the 20XX income year? | A1: Yes

Relevant facts and circumstances: (1) The Company is a private company is an Australian proprietary company limited by shares. The company was incorporated in Australia on XX/XX/20XX and is registered with the Australian Securities and Investment Commission. (2) The Company is developing an innovation. (3) The Company has no subsidiaries and is not member of a consolidated group. (4) None of the Company's equity interests are listed for quotation of an approved stock exchange either in Australia or a foreign country. (5) The Company incurred total expenses of $XX,XXX in the 20XX income year. (6) The Company had a total assessable income of $XX,XXX in the 20XX income year. (7) During the 20XX income year, the Company conducted research and development activities (R&D activities) in relation to it innovation These R&D activities were registered with the Department of Industry, Science and Resources under the Research & Development Tax Incentive program. $XX,XXX of the Company's 20XX accounting expenditure was claimed as notional deductions under section 355-205. (8) The Company was accepted as a member of the 20XX cohort of an accelerator program recognised by the ATO as accelerator ESICs. (9) The Company intends to undertake a capital raising by issuing new equity interest in the form of shares to external investors during the 20XX income year. At the time of the private ruling application was made the Company had not raised any capital during the income year. (10) The Company has provided a number of documents including: (a) private ruling application, (b) media release on the acceptance to the Accelerator program (c) the company's 20XX company tax return. (11) 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 | Income Tax Assessment Act 1997 subsection 360-45(1)

Reasons for decision: Detailed Reasoning - Qualifying Early Stage Innovation Company: (1) Subsection 360-40(1) outlines the criteria required for a company to qualify as an 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. (2) A company will qualify as an ESIC if it is not a foreign company under the Corporations Act 2001 and meets both: • the early stage test, and • either one of the following innovation tests: o 100-point innovation test, or o principles-based innovation test. | Detailed Reasoning - 'The early stage test': (3) 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): (4) 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 3 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 three of those income years the company and its 100% subsidiaries incurred total expenses of $1 million or less; or (iii) registered in the Australian Business Register within the last three income years (the latest being the current year). (5) 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. (6) 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): (7) To meet the requirement in paragraph 360-40(1)(b), the company and its 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): (8) To meet the requirement in paragraph 360-40(1)(c), the company and its 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): (9) 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 - Foreign company test - paragraph 360-40(1)(f): (10) At the test time, the company must not be a foreign company within the meaning of the Corporations Act 2001. (11) 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 - Innovation tests: (12) 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 innovation test: (13) To meet the requirements of subsection 360-45(1) the company must have 100 points at a particular time (the test time) in an income year (the current year) as mentioned in an item of the table if that item applies to the company at that time. (14) Section 360-45 allocates points to a company for meeting requirements (listed in a table in that section). A company will have points if it meets those requirements at a particular test time. We have summarised the relevant items in section 360-45 in Table 1. Table 1 - items in section 360-45 (summarised) | Detailed Reasoning - Innovation criteria: 1 75 At least 50% of the company's total expenses for the previous income year qualified as notional deductions for R&D expenditure under section 355-205. 3 50 At least 15%, but less than 50%, of the company's total expenses for the previous income year qualified as notional deductions for R&D expenditure under section 355-205. 4 50 The company has completed or is undertaking an accelerator program for entrepreneurs (which meets certain conditions). | Detailed Reasoning - Application to your circumstances: Test time (15) For the purposes of this ruling, the test time for determining if the Company qualifies as an ESIC will be a particular date during the 20XX income year. Current year (16) For the purposes of subsection 360-40(1), the current year will be the 20XX income year. For clarity, in relation to particular requirements within subsection 360-40(1), the last 3 income years will include the 20XX, 20XX and 20XX income years, and the income year before the current year will be the 20XX income year. | Detailed Reasoning - Foreign company test: (17) As the Company was incorporated in Australia as a private company under the Corporations Act 2001 it is not a foreign company within the meaning of Corporations Act 2001 and paragraph 360-40(1)(f) is satisfied. | Detailed Reasoning - Early stage test: Incorporation or Registration - paragraph 360-40(1)(a) (18) As the Company was incorporated on XX/XX/20XX, which is within the last 3 income years, subparagraph 360-40(1)(a)(i) is satisfied. Total expenses - paragraph 360-40(1)(b) (19) As the Company had total expenses of $XX,XXX in the 20XX income year, which is less than $1 million, paragraph 360-40(1)(b) is satisfied. Assessable income - paragraph 360-40(1)(c) (20) As the Company had assessable income for 20XX income year of only $XX,XXX, which is less than $200,000, paragraph 360-40(1)(c) is satisfied. No stock exchange listing - paragraph 360-40(1)(d) (21) As the Company is privately owned and none of its shares are listed on any stock exchange in Australia or a foreign country paragraph 360-40(1)(d) is satisfied. Conclusion on early stage test (22) The Company satisfies the early stage test for the entire 20XX income year, as each of the requirements in paragraphs 360-40(1)(a) to (d) and paragraph 360-40(1)(f) have been satisfied. | Detailed Reasoning - The 100 point innovation test: (23) To meet the requirements of subsection 360-45(1) the Company must obtain 100 points at a particular time (the test time) in an income year (the current year). The Company will obtain points for meeting certain objective criteria as mentioned in an item of the table 1 if that item applies to the company at that time. (24) The Company are applying for the following items from Table 1 in subparagraph 360-45(1): • Item 1, qualifying Research and Development (R&D) expenditure of the company in the previous income year is at least 50% of the company's total expenses, and • Item 4, the company has completed ort undertaking an accelerator program (which meet certain conditions). Qualifying R&D expenditure (25) Either Item 1 or 3 of the table in subsection 360-45 may apply where a company incurred R&D expenditure in the previous income year. The relevant innovation criteria are: • Item 1: A company will be awarded 75 points under Item 1 of the table in subsection 360-45(1) where at least 50% of the company's total expenditure in the previous income year is expenditure that can be notionally deducted under section 355-205 (about R&D expenditure). • Item 3: A company will be awarded 50 points under Item 3 of the table in subsection 360-45(1), where at least 15%, but less than 50%, of the company's total expenses for the previous income year is expenditure that the company can notionally deduct for that income year under section 355-205 (about R&D expenditure). (26) The Company has reported items of income and expenditure in its 20XX company tax return, including R&D expenditure. We have accepted as facts, without determining, that: • the activities of the Company registered with Ausindustry qualified as R&D activities, namely core R&D activities or supporting R&D activities under Division 355, and • the $XX,XXX the Company recorded as R&D expenditure has been correctly claimed as notional deductions under Division 355. (27) According to the Company's 20XX company tax return it incurred total expenditure of $XX,XXX, which included $XX,XXX in R&D expenditure which is XX.XX% of $XX,XXX. Consequently, more than 50% of the Company's expenditure in the 20XX income year was R&D expenditure notionally deducted under section 355-205. (28) Therefore, the Company obtains 75 points from 1 July 2025 as it meets the criteria set out in Item 1 of the table in subsection 360-45(1). Eligible accelerator program (29) Under the 100-point innovation test used to determine if a company qualifies as an early stage innovation company (ESIC) under section 360-40, 50 points are available under Item 4 of the table in subsection 360-45(1) if a company has completed or is undertaking an eligible accelerator program 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. (30) Essentially, an accelerator is a type of organisation that assists new ventures by providing accelerator programs. (31) 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. (32) Accelerator programs are run on a fixed 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. (33) It is not sufficient for a program to simply meet the accepted definition of an accelerator program in order for startups 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). (34) 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 programmehas 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. (35) 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 - 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 2 entrepreneurs. (36) The Accelerator program the Company is undertaking is recognised by the ATO as an accelerator for ESICs. (37) The Company was accepted into the program and will commence the program on XX/XX/20XX. (38) Consequently, the Company will be awarded 50 points for meeting the criteria under Item 4 of the table in subsection 360-45(1) from XX/XX/20XX. Conclusion (39) From XX/XX/20XX, the Company passes the 100-point innovation test as it will have obtained 75 points from satisfying Item 1 of the table in subsection 360-45(1) and 50 points for satisfying Item 4 of the table in subsection 360-45(1), which combined exceeds 100 points. (40) The Company meets the eligibility criteria for an ESIC under subsection 360-40 from XX/XX/20XX since as it is not a foreign company, satisfies the early stage test and the 100-point innovation test.