Private ruling: Early-stage innovation company
Date of advice: 13 April 2026
Published: 13 July 2026
Ruling period: 1 July 2025 to 30 June 2026

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

Relevant facts and circumstances: 1. Company A was incorporated in Australia during the 20XX income year. 2. Company A's shares aren't listed on a stock exchange in Australia or elsewhere. 3. Company A is developing Product B, relevant to Industry C. 4. This paragraph described Product B but has been removed for confidentiality reasons. 5. Compared to products currently on the relevant applicable market, Product B: • is suitable for both Demographic D and Demographic E (rather than just Demographic D) • doesn't involve using Technique F, which is costly • is more energy efficient than existing products on the relevant applicable market • costs about half the price of existing products on the relevant applicable market. 6. Company A plans to sell these products in first the Australian market, and then expand to other regions overseas, including Country G. 7. Company A submits that its manufacturing is scalable. Company A plans to establish new factory in Country G. This will lower manufacturing costs. (Paragraph partly removed for confidentiality reasons.) 8. Paragraph removed for confidentiality reasons. Assumption There will be no material changes to Company A's activities during the remainder of the 20XX income year.

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

Reasons for decision: Detailed Reasoning - Answer 2: Yes. | Detailed Reasoning - Explanation: 9. Subsection 360-40(1) lists the conditions to qualify as an ESIC. We list and apply them to Company A in Tables 1 and 2. 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 current (20XX) income year. 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 current income year is 20XX, so the previous income year was 20XX. Company A didn't incur any expenses in 20XX because it didn't exist (incorporated in the 20XX income year). 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 didn't have any assessable income in the 20XX income year because it didn't exist (incorporated in 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. Company A's equity interests aren't listed on any stock exchange. Paragraph (e): the company either has a 100 points under section 360-45, or meets the principles-based test. Company A meets the principles-based test. See Table 2. Paragraph (f): at the test time, the company isn't a foreign company (within the meaning of the Corporations Act 2001 ). Met. Company A is incorporated in Australia, so it isn't a foreign company. 10. We apply the principles-based test to Company A in Table 2. Having reviewed the application and supporting documents, we're satisfied that Company A passes the principles-based test. | Detailed Reasoning - Applied to Company A: (i) the company is genuinely focussed on developing for commercialisation one or more new (or significantly improved) products, processes, services, or (marketing or organisational) methods Met. Company A is developing a product for commercialisation: Product B. We accept that Product B is new (or at least significantly improved) for the relevant applicable market because it is suitable for both Demographic D and Demographic E, can be used without Technique D, and is both more energy efficient and cheaper than competing products currently on the market. (ii) the business relating to those products, processes, services or methods has a high growth potential Met. We're satisfied that Company A's Product B business has the potential to expand sales and market share in the relevant applicable market. (iii) the company can demonstrate that it has the potential to be able to successfully scale that business Met. We're satisfied that Company A has the potential to scale the business: it will establish a factory in Country G, which should allow it to reduce costs-per unit as it increases sales. (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 Met. Company A plans to begin sales in the Australian market and expand to the Country G market (and potentially other global markets). (v) the company can demonstrate that it has the potential to be able to have competitive advantages for that business Met. Company A has potential competitive advantages because unlike competing products, Product B a) can be used without Technique F, and b) is suitable for both Demographic D and Demographic E. It also is both more energy efficient and cheaper than existing products in the relevant applicable market. 11. Since Company A meets the conditions in subsection 360-40(1), including the principles-based test, it qualifies as an ESIC for the ruling period. 12. Note that this ruling depends on there being no changes to the facts and circumstances during the ruling period. The ruling won't apply if those facts and circumstances change.

• 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 | • 'principles-based test' means the conditions listed in subparagraphs 360-40(1)(e)(i) through (v)