Private ruling: Early-stage innovation company eligibility
Date of advice: 10 December 2025
Published: 2 February 2026
Ruling period: DD MM YYYY to DD MM YYYY
Date scheme commenced: DD MM YYYY

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 for the period DD MM YYYY to DD MM YYYY? | A1: Yes.

Relevant facts and circumstances: Background Facts 1. The Company is an Australian resident proprietary limited company incorporated in Australia on DD MM YYYY. 2. The Company does not hold shares or interest in any companies or trusts. 3. The Director of the Company is Person X. 4. For the financial year ended DD MM YYYY the Company did not earn any income and incurred total expenses of less than $1million. 5. The Company's equity interests are not listed for quotation in the official list of any stock exchange, either in Australia or a foreign country. 6. The Company is preparing for a capital raise involving arms-length investors. The Company will issue ordinary shares to the investors in the income year ending 30 June 20XX. 7. The Company currently employs X staff members in various roles. Product Development 8. The Company is a developer of software solution offerings for clients in various industry sectors. 9. The Company is currently developing an innovative software engine (the Product). 10. Significant expansions, refinements and adaptations of the Product are currently being planned. 11. The Product will be the fundamental technology engine utilised by the Company to develop an 'ecosystem' of product offerings and solutions. 12. The products and solutions that will utilise the Product are being developed with a focus in assisting Australian businesses in deciphering and complying with the regulatory frameworks in which those businesses operate. 13. The Company is currently targeting particular regulatory frameworks. 14. The Company provided details of the Product's architecture, functionalities and key technical features. 15. The Company hired a third party agency under a contracted agreement to provide services in relation to the build, marketing and commercialisation of the Product. 16. The Company's flagship offering (Solution1) is being developed as a subscription-based software-as-a-service (SaaS) product. 17. Solution1 is a workplace management software for specific professionals. 18. Solution1 is principally targeted towards particular sized businesses. 19. Solution1 is in pilot testing and pre-launch marketing phase. A beta-prototype (minimum viable product, MVP) is being actively tested to prepare it for initial product launch. 20. Product launch is anticipated to occur within the 20XX income year. 21. The development design of Solution1 is in the form of a dashboard application (accessed via a web browser). The Company listed the features built into the dashboard. 22. The combined utilisation of the listed features by Solution1's customers will streamline processes and enhance decision-making by the targeted professionals while ensuring adherence to legislative requirements. 23. The Product is the software framework upon which all of these features are to operate and be built on, adapted and implemented in the particular focus context. 24. The Company provided practical examples of how Solution1 will be utilised in practice by its users. 25. The Company has commenced developing Solution2 as part of their ecosystem of products. 26. Solution2 is designed to assist certain high-risk businesses and professions comply with particular regulations in Australia. 27. Solution2 is being developed as a SaaS product offering. 28. The Company detailed the architecture being developed for Solution2. 29. The Company's capital raise will be critical to ensure that the Company has sufficient funds to progress Solution2 towards full-scale development and commercialisation. 30. Solution2 is in its research and development phase. The Company aims to have the MVP ready for pilot testing with select businesses in 20XX. 31. The Company is investigating how the Product's architecture might be further developed and expanded upon to create Solutions for more industry sectors. Commercialisation Strategy 32. The Company has undertaken numerous activities and steps in order to commercialise the Product, Solution1 and Solution2 to bring these innovations to market. 33. From incorporation, the Company has conducted market research into the viability of Solution1 for the particular industry. The Company named reports and presentations used in its market research. 34. The Company identified that there is a void in the product offerings available to the addressable market of Solution1. 35. The Company has consulted with businesses to obtain feedback that their offering addresses the concerns of Solution1's target audience. 36. The Company applied for a trade mark for Solution1 and it was registered with IP Australia on DD MM 20XX. 37. The Company has registered a domain name ready for marketing of Solution1. 38. The Company prepared a project scope to put forward to a third party digital agency to provide services toward commercialisation of the Product, in the form of Solution1. 39. In 20XX, the Company entered into a contractual agreement with an agency to carry out the work purchased by the Company. Under the contractual agreement, the agency will invoice the Company, and the Company will pay the agency for the work carried out, in line with the payment schedule. The agency is not liable to the Company or any third party for damages for errors made in the contracted work. 40. In 20XX, the Company entered into a service agreement with a firm (XX Pty Ltd) for the purposes of engaging XX Pty Ltd to assist in the generation of content and documentation for inclusion within Solution1. Under the services agreement, the Company agrees to pay XX Pty Ltd in accordance with the figures detailed in a company document. 41. The Company has developed a marketing plan and business plan for Solution1. 42. The Company provided details of the marketing plan and activities undertaken in executing the plan. 43. A comprehensive marketing plan for Solution2 is being developed. The Company described the key aspects of the marketing plan. 44. The Company detailed the required activities it will undertake for the commercialisation of the Product, Solution1 and Solution2, along with a commercialisation timeline. 45. The Company's target market for Solution1 is businesses of a certain size, and in particular, professionals employed in these businesses, as well as consultants. 46. Market research undertaken by the Company indicated that the target professionals felt that existing technology solutions did not align with their current and future business needs. The market research also identified a feeling of uncertainty among the professionals about what technologies to adopt for businesses. 47. The Company saw an opportunity to improve business functions by utilising the latest technologies to address the current and future needs of the target professionals. 48. The Company commenced plans to develop the Product and Solution1 and position itself as an early-adopter and future market leader of this technology in the particular industry sector. High Growth Potential 49. The Company's research indicated that the target market for Solution1 represents high growth in Australia. 50. The Company considers that there is a substantial financial gain to be made if it can position itself as an early-adopter and develop an innovative and distinct viable product that addresses the addressable market. 51. The Company has developed an extensive marketing strategy for Solution1. As set out in the marketing plan, the Company will pursue its target market nationally in Australia through a combination of strategies. 52. The Company intends to leverage existing relationships it has with other businesses via its key personnel to use as a basis of initially pitching Solution1 while it is in pilot phase. 53. The Company provided a list of key potential business customers. 54. The Company recently soft-launched the Solution1 brand to the public to commence generating product interest prior to the product launch. 55. The Company expects that once Solution1 and the Product are fully commercialised, the marketing strategies will attract substantial engagement with the target market, driving revenue growth. 56. The target market for Solution2 is certain businesses and professionals in Australia. Solution2 will assist those entities comply with their obligations relating to particular regulations. 57. The Company anticipates that there will be a high demand for solutions which simplify processes for the target market. 58. The Company considers that there is substantial financial gain to be achieved by positioning itself as a 'first mover' in this area, particularly in utilising new technology. 59. The target market and marketing strategy for the Product are synonymous with that of Solution1 and Solution2. As the technology becomes adaptable to an increasing number of different regulatory regimes, this will be expanded upon to include industries of relevance to those regulatory regimes. Scale up the business 60. There is significant potential scope to scale the Product, Solution1 and Solution2, and the Company's business. 61. The Company has determined potential customer numbers and its cost and price structure for Solution1 and Solution2. 62. The pricing structure for Solution1 is anticipated to be between $X to $X per annum per user with a sliding scale based on a business' employee numbers and business structure. 63. Being a subscription-based model, it is easy to facilitate access to Solution1 for oncoming users. No onerous hardware is required to utilise Solution1 other than existing internet connection and computer. 64. As Solution1 completes its commercialisation, costs incurred to date comprising mainly research and development costs will be replaced primarily by operational costs which are expected to decrease proportionately with increased revenue from subscriptions from customers. 65. The Company provided revenue and expense forecast for the next X years which shows substantial revenue growth and profitability generated from Solution1 over time. 66. Other offerings of the Company will support revenue growth as they are developed. 67. The Product is expected to have a number of applications entirely distinct from Solution1 making the technology highly scalable for the Company's business. Solution2 is an example of a different use of the Product. 68. Initial pricing for Solution2 will vary depending on the number of users, access to features required by customers etc. Pricing is intended to range from $X per annum to $XX per annum with an option for custom pricing depending on the customer's unique needs. 69. From its early research, the Company considers Solution2 to be a worthwhile and scalable solution given the significant number of businesses expected to require support in complying with their obligations. 70. Each new solution developed from the Product will be targeted towards a different target market which will provide new revenue streams for the Company. 71. The Company described barriers to entry and action it is undertaking, or undertaken, to mitigate those barriers to ensure the Company is capable of scaling its business to fill its high growth potential. Broader than Local Market 72. The Company and its Product and Solutions have the potential to address a broader than local market. 73. The Company's concept, marketing, and business plans and commercialisation roadmap together evidence the Company's intention to expandthe Product, Solution1 and Solution2 to their respective target markets nationally, and not to a singular city. 74. Given the target markets and particular industries exists nationally, potential customers are not limited to any defined geographical city or region in Australia. 75. The Company is investigating its capability to supply additional Solutions to new markets across Australia. 76. As the Company's solutions are accessed via a web browser there are no significant logistical barriers to supplying national markets. Competitive Advantages 77. The target industry for Solution1 is yet to widely adopt innovative technologies for a variety of reasons. 78. The Company seeks to position itself as one of the early adopters of the latest technologies available to be implemented in the particular industry and aims to be the first product on the market to properly capitalise on the technology for commercial use. 79. The Company detailed several competitive advantages to the Company provided by the Product and Solution1. 80. The Company named software that exists in the market and described how Solution1 can deliver benefits to customers greater than those offered by the competing products or services. 81. A number of aspects of Solution1 are advanced and unique and will allow the Company to outperform its competitors in meeting the current and future business needs of the target market. 82. The Company detailed competitive advantages that Solution2 provides the Company, highlighting first-mover advantage. 83. The Product also offers competitive advantages for the Company's business in the form of potential future applications for other software offerings in other sectors. This will ensure that the Company is able to diversify its offerings and remain competitive, generate new revenue streams and position itself as a market leader in other industries in the particular technology space. 84. The Company will utilise the industry knowledge and experience of key staff within its business to provide a competitive advantage in relation to Solution1 and Solution2 including: • Leveraging longstanding relationships within the particular industry in the promotion of Solution1 • Leveraging Person X's extensive experience in the commercialisation of technology innovations, enterprise sales experience for SaaS products and international expansion of software offerings to develop and market Solution2 as a market leading product. 85. The Company's strategic relationship with XX Pty Ltd offers its own competitive advantages. It is unlikely that many competitor products in the context of Solution1 would have a similar relationship with specialists in a manner comparable to that of the Company and XX Pty Ltd. 86. The strategic relationship with XX Pty Ltd ensures that Solution1 remains an up to date, accurate and high quality offering for users. 87. Associating the Company's products with XX Pty Ltd benefits the Company's reputation and brand profile and provides the Company with a level of credibility in the market despite being a new product. This provides the Company with competitive advantages, particularly in attracting new customers. Intellectual Property 88. The purpose built engine, being developed in the form of Solution1, is exclusive and proprietary to the Company. Accordingly, the Company will own the IP associated with the technology and architecture of other products developed using the technology and architecture of Solution1. 89. The Company has obtained a registered trade mark for Solution1. 90. Under the contractual agreement with the agency, the Company grants the agency a non-exclusive, royalty free, worldwide right and licence to Content provided by the Company to the extent necessary for the agency to fulfill the Company's work order. Upon final payment the agency will transfer all rights, titles, and interest in the IP related to the completed work order to the Company; and copyright is automatically assigned to the Company. 91. Under the services agreement with XX Pty Ltd, the Company maintains the IP rights of the content and documentation provided by XX Pty Ltd. Information provided: 1. The Company provided documents containing detailed information in relation to its product including: • Private ruling application dated DD MM YYYY and accompanying submission. • Business plan, marketing plan, commercialisation timeline, revenue and expenses projections, product launch pack, contractual and service agreements, market research sources. 2. We referred to the information within these and other documents provided in applying the relevant tests to the Company's circumstances.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 360-40 | Income Tax Assessment Act 1997 subsection 360-40(1) | Income Tax Assessment Act 1997 paragraph 360-40(1)(e)