Private ruling: Eligible accelerator program
Date of advice: 8 June 2022
Published: September 2022
Ruling period: 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 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.

Relevant facts and circumstances: 1. Entity A is a company that was registered in Australia on XX December 20XX. 2. Entity A helps start, grow, scale and connect companies within their industry. 3. Entity A has provided the Program since 20XX and offers this program to founders and CEOs of early stage innovative businesses that demonstrate high growth potential with indicators of product-market fit. 4. The directors of Entity A have been provided. 5. The Program is an intensive program structured over 12 months to ensure sufficient support, guidance and education is provided to the founders to successfully implement and achieve their expansion and growth goals. 6. The Program is offered only to companies. Where an applicant is a sole trader or operated via a trading trust, then a restructuring discussion will be provided. 7. Since its inception in 20XX the Program has been run XX times. 8. Entry into the Program is decided by via an application process which is judged against set selection criteria. 9. The first step in the application process is an expression of interest in the Program, which is open throughout the year. Entity A collects information regarding the founder and their startup to get an understanding of their business and perform an initial assessment of whether the business is an innovative company with high growth potential, and their appropriateness for the Program. 10. There is no quantitative threshold to the selection criteria, however, businesses must satisfy a number of criteria, a copy of which was provided. 11. Furthermore, applicants are interviewed for an understanding of the team's ability to execute, and their coachability. 12. As the Program is fee-for-service, the candidates are ideally in market and post-revenue, however Entity A has previously accepted high prospect companies who have successfully raised external capital and are in a position to be revenue-generating within the next 6 to 12 months. 13. After an assessment, if the business satisfies the selection criteria, there is comfort in the team's ability to execute the vision, and the delivery team agrees the Program and the business are appropriate for each other, a position in the upcoming cohort may be offered. 14. If the applicant is not suitable, they will either be advised or flagged in Entity A's database as potential participants for future Program cohorts. Either outcome is communicated to the participant. 15. At the end of the selection process, successful applicants must pay a program fee to enter the program. 16. Entity A is committed to operating a cohort where more than XX participants are confirmed but may accept up to XX participants. The Program positions are first in, best dressed, and overflow is referred to a subsequent cohort. 17. Entity A does not provide seed funding in exchange for equity in the participating company. However, participants are introduced to angel investors and venture capital firms to facilitate and initiate the capital raising process (as applicable). 18. Each Program cohort meets one full day a month in an Australian city for a set period, and is not co-located, but has access to the virtual online community. [1] 19. Throughout the program, entity A also provides participants access to a wide range of additional, growth focused services [2] : 20. There are set modules covered throughout the Program, a copy of which has been provided. 21. The Program closes with a Pitch Day which culminates with the Founders' learnings from the Program and provides the opportunity to pitch to the extended Program Alumni, interested investors, Program mentors and their associated networks. 22. Mentors and key content presenters for the current Program have been provided by Entity A [3] :

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 360-A | Income Tax Assessment Act 1997 section 360-45

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise indicated. As the Program was first provided in 20XX, which is an income year before the periods to which this ruling applies, the Program satisfies 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: 1. In determining whether a company is an early stage innovation company (ESIC) under paragraph 360-40(1), the company must have at least 100 points under section 360-45 or meet the requirements of subparagraphs 360-45(1)(i) to (v). 2. In respect of the 100 points, 50 points are available under item 4 of the table in subsection 360-45(1) if a company has: a) 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. 3. Paragraph 1.95 of 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): ...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. 4. Essentially, it is not sufficient for a program to simply meet the generally accepted meaning of the term "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 by meeting the specific requirements listed in item 4 of the tablein subsection 360-45(1). Accelerator program - generally accepted meaning [4] 5. 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). 6. Accelerator programs are for a fixed term and of 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. 7. Accelerator programs have been identified as generally having five defining, partially-interdependent features, being: seed funding; cohort based; co-location; a structured program; and mentoring. However, all five features may not be present in all programs. | Detailed Reasoning - Application to the program: 8. Considering these features in relation to Entity A: (i) Seed funding - The program and Entity A do not provide seed funding in exchange for equity in the participating company, however participants are introduced to angel investors and venture capital firms to facilitate and initiate the capital raising process (as applicable). (ii) Co-hort based entry and exit - the Program is cohort-based, with companies selected to participate each time the Program is run. The participants end the Program with a presentation day. (iii) Co-location - the Program is delivered in a capital city in Australia, with participants co-locating one full day per month of the program, for all other times participants have access to the virtual online community. (iv) Structured program - the Program has a 12-month duration, which is longer than the general time frame in which an accelerator program is provided. Each of the 12 months has a theme and each month, participants must attend a face-to-face, classroom-style delivery. All 12 themes are geared towards the program's aim of accelerating growth and fast-tracking connections and customers. (v) Mentoring - Mentors and coaches are allocated to all participants in every month of the 12 months that the Program is run. | Detailed Reasoning - Conclusion - generally accepted meaning of accelerator program: 9. The information provided by Entity A in respect of the Program demonstrates that it meets the generally accepted meaning of an accelerator program. | Detailed Reasoning - Accelerator program - specific requirements: 10. 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: (i) A merit-based screening process - Entry into the 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 on behalf of the company. 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 - Entity A 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 Entity A. (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 the Program, or another accelerator program offered by Entity A. The term 'cohort' refers to a group or batch and is not merely one or two entrepreneurs. [5] | Detailed Reasoning - Application to the program: 11. Considering these factors in relation to the Program: (i) Merit-based screening process - Entity A requires potential participants to enter into an application and selection process in respect of the Program. The Program requires payment of a fee upon successful selection. (ii) The company, not an individual, must complete the program - This is not determinative of the program itself, but it must be the company that completes the Program. The Program is tailored to accept the founders from each start-up, plus key personnel from their company [6] . Upon completion of the Program, companies receive certification to acknowledge completion of the Program. (iii) Time-limited support - The Program runs for set period with support ended at the end of this period. (iv) Six month minimum period - The Program was first offered in 20XX. This is more than six months before the first Cohort in the first income year that this ruling applies to will start the Program. (v) Prior completion by a cohort of entrepreneurs - The Program has been completed by previous cohorts. | Detailed Reasoning - Conclusion: 12. The Program is an accelerator program according to the generally accepted meaning. In addition, in relation to programs to be offered in 20XX and any subsequent years, on the basis that those programs will be consistent with the Program outline provided for this private ruling, they will meet the requirements to be an eligible accelerator program according to item 4 of the table in subsection 360-45(1). [1] youtube video. [2] document provided with ruling application. [3] document provided with ruling application. [4] ATO publication Eligibility of accelerator programs under the 100-point innovation test. [5] ATO document Eligibility of accelerator programs under the 100-point innovation test. [6] The Program Curriculum document provided with ruling application.