Private ruling: Eligible accelerator program
Date of advice: 9 February 2018
Published: June 2018
Ruling period: ● Year ended 30 June 2017 | ● Year ending 30 June 2018 | ● Year ending 30 June 2019 | ● Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Does the Accelerator Program delivered by the Company 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. The Company has been operating for almost five years. The Company is specialising in developing and providing accelerator programs that focuses on providing a range of support services and funding opportunities to startup entrepreneurs who are building innovative and potentially market changing technology and products. 2. The Company is ranked as the most active accelerator company in Australia over 100 startups processed through a number of previously run programs since launched. 3. Through these programs, a large number of startups have gone on and achieved successful commercialisation through funding or marketing adoption, while some others have closed. 4. As part of each program startups will receive an initial upfront investment on gaining entry into the program as well as an opportunity for a further follow-on funding from the Company. 5. Startups also have the opportunity to gain additional investment from the corporate sponsor and investment partners. The Program 6. Each program will be managed by the Company’s dedicated Program Team. The typical process for running a Accelerator Program has the following five steps: Application Period This step involves searching and selecting the best startups from around the country (and even the world) to apply for a position in the program. No fee is payable on application but the startups are required to complete an application form. The selection process is underpinned by a merit system where selection of applicants are based on selection criteria such as opportunity and commercialisation of the product/innovation as well as selecting opportunities that best meet the program Corporate’s theme criteria. Pitch Day Shortlisted startups (ranging between 8 and 14 per intake) will have the opportunity to pitch in front of a selected panel and attempt to secure acceptance into the program. The panel consists of key decision makers from the industry experts, the Program Team, and mentors from within the program. The Program Selected startups will commence a program that is designed to accelerate learning, skill development and business building into a three month period. As part of the program, startups will have access to industry mentors, and also key players from within the Company. The goal is to accelerate the growth of the startup using lean startup methodology, and investigate potential synergies. Demo Day Startups will be given the opportunities to pitch their business in front of an audience of key stakeholders from potential investors and industry leaders/experts who will make a decision on whether the startups should be considered for the next stage and receive investment offers. Incubation In the final step, selected teams will receive an additional three months of support from the Company. 7. In addition to gaining access to industry experts and mentors, the cohorts are provided with dedicated seats in a co-working space, branding and marketing support, legal and financial advice from the Company and inclusion in media events.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 360-A | Income Tax Assessment Act 1997 Section 360-40 | Income Tax Assessment Act 1997 Section 360-45

Reasons for decision: Detailed Reasoning - Eligible Accelerator Program: 8. Under the 100-point innovation test used to determine if a company qualifies as an early stage innovation company (ESIC) in section 360-40, 50 points are available if a company has completed or is undertaking an eligible accelerator program (item 4 of the table in subsection 360-45(1)). 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. 9. In the context of ESIC requirement, Accelerators are a relatively new type of organisation. Essentially, an accelerator is a type of organisation that assists new ventures by providing accelerator programs. 10. Accelerator programs are designed to help Founders 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. 11. 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. 12. 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). 13. 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 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. 14. 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 two entrepreneurs. | Detailed Reasoning - Application to your circumstances: 15. For the purposes of this ruling the Accelerator Program must satisfy two overarching requirements: 1) it is an accelerator program in accordance with the common definition; and 2) it is an eligible accelerator program in accordance with item 4 of the table in subsection 360-45(1). | Detailed Reasoning - Accelerator Program: 16. The Company’s Accelerator program aims to give the startup entrepreneurs the best chance at successfully launching and building innovative, market changing technology and products. The program is designed to achieve this by providing the capital, market insight and learning, access to industry experts and mentors, as well as exposure to potential market and customers. 17. Since commenced operation, the Company had run a number of accelerator programs with funding provided to a large number of startups, some of which have achieved commercial success. 18. Throughout the program, startup entrepreneurs are also provided with support and advice from the program team as well as facilities and services including co-working space, branding and marketing support and media exposure. The startup entrepreneurs also gain valuable support from the Company's growing community of alumni, mentors and partners. 19. In addition, participants will each receive an initial upfront investment on gaining entry into the program and a further investment from the Company. These elements of seed funding and the provision of advice and support through an established structured program are indicative of an accelerator program. 20. Therefore, it is accepted that the Company’s Accelerator Program meets the defining characteristics of what is regarded as an accelerator program. | Detailed Reasoning - Eligible Accelerator Program: 21. Each of the five factors that an accelerator program must satisfy to be considered an eligible accelerator program in accordance with item 4 of the table in subsection 360-45(1) will be examined in turn. | Detailed Reasoning - Merit-based screening process: 22. Each program begins with searching and inviting the best startups opportunities from around the country (and even the world) who meet the program themes to apply for a position in the program. This is generally done through media releases, industry events and online campaigns. 23. Startups are required to complete an application form and there is no limit on the number of applicant for each program. Startups are not required to pay a fee on application. 24. Shortlisted startups will further pitch their ideas to a panel of judges consisting of key decision makers from industry experts, the Program Team, and mentors from within the program. Cohorts who present ideas that incorporate all the key themes with the best opportunity to successfully commercialise and bring disruptive product/technology to the market will be chosen. 25. This process is highly competitive and selection of startups for the program is a merit-based screening process. | Detailed Reasoning - The company, not an individual, must complete the program: 26. The Company had stated that on completion of the program, the participating Startup Company (not the Founder) will receive certification as having successfully completed the accelerator program. 27. It is accepted that companies undertake and complete the Program. | Detailed Reasoning - Time-limited support: 1. Generally, time-limited support will mean a program lasting between 3 to 6 months. This period of time is considered indicative only and is designed to provide guidance rather than a definitive rule. 2. The Company’s Accelerator Programs is a structured three months program with a further three months of support from the Company offered to selected cohorts to build synergies. The program is well within the accepted time period and is sufficiently intensive where success and failure are identified through the effort, dedication, creativity and commitment of the cohorts focusing on growing and scaling the business. 3. Therefore, the Company’s Accelerator Program meets the characteristic of providing time-limited support. | Detailed Reasoning - Six month minimum period: 4. The Company had stated that it had previously run a number of accelerator programs since the company commenced operation. Therefore, SAPL meets the requirement of having provided accelerator programs for a minimum period of six months. | Detailed Reasoning - Prior completion by a cohort of entrepreneurs: 5. The Company is ranked as the most active accelerator company in Australia with over 100 startups entrepreneurs processed through its accelerator programs since launched. 6. Therefore, the Company meets the requirement that it have at least one cohort of entrepreneurs previously complete one of its accelerator programs. | Detailed Reasoning - Conclusion: The Company’s program is an accelerator program according to the common definition. In addition the program meets the features of an eligible accelerator program according to item 4 of the table in subsection 360-45(1).