Private ruling: Early stage innovation company
Date of advice: 15 April 2026
Published: 20 July 2026
Ruling period: 1 July 20XX to 30 June 20XX

Ruling: Q1: Does Company A qualify as an ESIC? | A1: Yes.

Relevant facts and circumstances: 1. Company A is an Australian proprietary company incorporated during the 2024 income year. 2. Company A issued shares during the 2025 income year, as described in. Table 1: Company A share issues during the 20XX income year (removed for confidentiality reasons) Date Number of shares issued Total equity X XXX XXXX X $X 3. For the share issues listed in Table 1: • Company A received at least $X from shares issued to arm's length third parties that weren't associates of Company A • the subscriptions were conducted on arm's length terms • the consideration reflected an arm's length price for the investment. 4. Company A had one wholly owned subsidiary for part of the 20XX income year, being Company B. 5. Table 2 sets out Company A's income, total expenses for the 20XX income year, including Company B for the period that Company B was Company A's subsidiary. Table 2: Company A's income and expenses for the 20XX income year Item Company A Company B Combined Company A + Company B Income $a $b $a+b ($a+b is less than $XK) Total expenses $c $d $c+d ($c+d is less than $XM) 6. Company A's eligible R&D expenditure for the 20XX income year was $x. ($x is between 15% and 50% of $c+d) 7. None of Company A's equity interests have been listed on a stock exchange, and this won't change before 1 July 20XX.

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

Reasons for decision: Summary: 8. Subsection 360-40(1) lists the conditions to qualify as an ESIC. We list and apply them to Company A in Tables 3 and 4. Company A meets these conditions for the reasons given in those tables. | Detailed Reasoning - Applied to Company A: Paragraph (a): the company must meet any of three tests about incorporation or business registration in paragraph (a). One of those tests is that the company was incorporated in Australia within the last 3 income years (the latest being the current year). Met. Company A was incorporated during the 20XX income year. The current year is the 20XX income year, so 20XX is in the last 3 income years. Paragraph (b): the company and its 100% subsidiaries incurred total expenses of $1 million or less in the income year before the current year. Met. The year before the current year is 20XX. Company A's total expenses (including its 100% subsidiary, Company B, for the period Company B was a subsidiary) for the 20XX income year were $a+b, and this is less than $X million. Paragraph (c): the company and its 100% subsidiaries had a total assessable income of $200,000 or less in the income year before the current year. Met. Company A's total assessable income (including Company B for the period it was a subsidiary) was $c+d. and this is less than $X for the 20XX income year. Paragraph (d): at the test time, none of the company's equity interests are listed for quotation in the official list of any stock exchange in Australia or a foreign country. Met. None of Company A's shares were listed on a stock exchange. Paragraph (e): the company either has 100 points under section 360-45, or meets the principles-based test. Met. Company A has 100 points under section 360-45: see Table 4. We don't need to consider the principles-based test. Paragraph (f): at the test time, the company isn't a foreign company (within the meaning of the Corporations Act 2001 ). Met. Company A was incorporated in Australia so it isn't a foreign company. 9. The 100-points test is in section 360-45. We apply relevant items in the 100-points test to Company A in Table 4. | Detailed Reasoning - Applied to Company A: Item 3 (50 points) 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 under the R&D provisions. Met. The current income year is 20XX, so the previous income year was 20XX. Company A had eligible R&D expenditure of $x in 20XX, which is between 15% and less than 50% of its total expenses ($c+d). Company A has 50 points under Item 3. Item 5 (50 points) Three conditions. a) A total of at least $50,000 has been paid for equity interests that are shares in the company. b) The company issued those shares to one or more entities that i) weren't associates immediately before the share issue, and ii) didn't acquire those shares primarily to assist another entity become entitled to a tax offset. c) The company issued those shares at least one day before the test time. Met. Subscribers who weren't associates paid Company A at least $X for the share issue. Those subscribers didn't acquire the shares to assist another entity become entitled to a tax offset because the share subscription was conducted on arm's length terms for an arm's length price. The shares were issued in the previous income year (20XX), so more than one day before the test time. Company A has 50 points under Item 5 (bringing the total to 100). 10. Company A has 100 points under section 360-45, so it passes paragraph 360-40(1)(e). We don't need to consider the principles-based test. 11. Since Company A meets the conditions in subsection 360-40(1), it qualifies as an ESIC for the ruling period.

• section 360-40 means section 360-40 of the Income Tax Assessment Act 1997 | • 'ESIC' means a company to which subsection 360-40(1) applies.