Private ruling: Early-stage innovation company eligibility
Date of advice: 10 March 2026
Published: 28 April 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 immediately after the issue of shares on DD MM YYYY to DD MM YYYY? | A1: Yes.

Relevant facts and circumstances: Background Facts 1. The Company is an Australian resident private company incorporated in Australia on DD MM YYYY. 2. The company is a standalone company. It does not have a parent company or have any subsidiaries. 3. The Company's equity interests are not listed for quotation in the official list of any stock exchange. 4. For the income year ended 30 June 20XX, the Company had less than $1 million in expenditure and had less than $200,000 assessable income. 5. The Company issued new ordinary shares to new investors in the income year ended 30 June 20XX. Product Development 6. The Company is developing an AI-driven platform (product) to be used in a particular industry for streamlining and improving certain business operations. 7. The Company provided details of the product's innovative functionalities and characteristics. 8. The Company's product works alongside a customer's existing operating systems. 9. The Company's product is designed to handle specific tasks in a way that is more accurate, faster, and more efficient than both humans and existing chatbots. 10. The product runs in a cloud-based system enabling a number of parallel customer service engagements, limited only by computer capacity. 11. The Company's product represents a significant improvement in the functionality, effectiveness and performance of existing solutions in the particular industry environment. 12. The Company's product has been developed through the application of a systematic progression of work designed to test its performance against an increasingly diverse set of operational challenges faced by target businesses. 13. A combination of AI machine learning and human designed interventions will evolve and develop the performance of the product. 14. The Company provided information about its ongoing product testing activities and details of testing outcomes assessed against replicable technical measures of effectiveness, accuracy, latency, user satisfaction and efficiency. 15. Performance outcomes inform product design interventions and/or machine learning. 16. The Company's product will achieve a new standard which will exceed existing industry standards of performance. 17. At the inception of the Company's product development, no existing examples of the specific AI technology were identified in the target market. 18. The performance improvements offered by the Company's product are new to market, have not been patented and are new to the literature. 19. As at 30 June 20XX, the Company had developed its product to a level to enable it to be brought to a limited test market and build a preliminary customer base. Commercialisation 20. The Company's genuine focus on developing its product for commercialisation is demonstrated by their early introduction of the product to the market, building a customer base and generating revenue from the product. 21. The Company has attracted a limited base of paying customers and test customers in Australia and some overseas countries. 22. The product's capability to integrate with customer's existing operating systems and reduce operational overhead expenses for customers also demonstrate its commercialisation potential. 23. Within the target industry, the Company is expanding its product services into niche markets that have been historically too complex for the use of traditional digital technologies. 24. The Company has determined its pricing model for their product and forecast the economic value for the company generated by commercialisation of the product. 25. The Company has updated its sales strategy and go-to market strategy and is targeting specific customers to ensure efficient and effective scaling of the product. 26. The product is in a saleable state however commercialisation is still in growth phase as the Company continues to refine its category positioning and go-to-market strategy. High Growth Potential 27. The Company detailed a number of factors that support that the Company's business has potential to grow rapidly and sustainably. 28. Interest in the Company's product and its early adoption by both Australian and international customers supports that there is very high potential for growth and a strong indicator of demand from the market. 29. The Company's product addresses a critical operational pain point being the inefficiency and inconsistency in the particular business operation. By developing a scalable and continuously improving solution, the Company is positioning itself to disrupt and outperform current market offerings, thereby showing a high growth potential. 30. The Company's technology is not only novel but also has capabilities to adapt to other industries as well as further expand within its targeted sector. 31. The Company's early go-to-market approach feeds its technology with real-world data to accelerate its learning and foster significant improvements in the product. 32. The Company is also leveraging partnerships to further expand. 33. The product's capability of integrating with a customer's existing systems significantly reduces onboarding issues and costs, making it a viable option for businesses to consider. 34. The product's technology and learnings are transferrable to a broader business use which further demonstrates the high growth potential of both the product and the Company's business. Scale up the business 35. The Company has the potential to successfully scale its business to fill its high growth potential. 36. The Company has determined its pricing for the product and provided a forecast of the Company's revenue and expenses for the next X income years in relation to the product. 37. The Company projects that its business will transition to profitability during the income year ending 30 June 20XX, driven by increased recurring revenue scale and operating leverage. 38. The Company's business model is designed for scalability. The product is a cloud-based platform allowing it to handle large and increasing volumes of customer interactions globally without significant infrastructure upgrades required. 39. The product has the capacity to readily interact with existing business systems without substantial customisation cost. 40. The Company is adjusting its income and sales models as required to meet the needs of the industry to ensure it is successful in scaling the business. 41. The Company is seeking constant feedback on its product to ensure the platform evolves in line with the market and is able to handle areas within the target industry that have previously not had success with traditional product offerings. 42. The Company's key executives have extensive experience and strong networks in the particular industry which can be readily leveraged to obtain fast feedback on the product. 43. The Company's revenue model is a subscription model. This model aligns revenue with customer growth, making it attractive to both smaller businesses and larger enterprises. 44. The Company's product uses real-world data meaning performance is continuously improving over time and reducing the need for human intervention. This capability of the technology encourages scalability by lowering support costs and increasing reliability. Broader than Local Market 45. The Company currently has customers in Australia and overseas and will soon be expanding their international market. 46. This global expansion has been achieved through the product's initial customer base and the strong global connections of the Company's key executives. 47. The product's cloud-based delivery model makes it inherently suitable for global deployment. In addition, the ability to integrate with the end users' systems further facilitates ease of adoption in broader markets globally. 48. The product is ideally suited for global businesses. 49. The Company has received interest from industries outside of the target sector, reinforcing that the Company can fill potential voids in the market across different industries as well as globally. Competitive Advantages 50. The Company's competitor analysis included conducting a review which canvassed the functionality and performance of competing technologies in the market. This included a review of patents granted and scholarly articles written in the particular field. 51. The Company's comprehensive review revealed no existing solutions in the particular target sector with comparable capabilities, demonstrating the Company's strong first mover advantage. 52. The Company described features of its product which further widens the gap on any new competitors. 53. The focus and deep expertise and networks of the Company's key executives gives the Company a strategic foothold in a market that has not historically relied on traditional technologies. Intellectual Property 54. The Company owns all intellectual property (IP) associated with its innovation and product. 55. The Company protects its IP through: • confidentiality and non-disclosure agreements with all employees and contractors • confidentiality clauses in contracts where appropriate • assignment of intellectual property provisions within any relevant agreements • controlled access to repositories and production environments • segregation of responsibilities and restricted administrative access. 56. The Company maintains internal governance processes to ensure proprietary data, source code and system architecture are safeguarded. Information provided 1. The Company provided the following documents containing detailed information in relation to its product: • Private ruling application dated DD MM YYYY. • Submission forming part of the Private ruling application dated DD MM YYYY. • Response to our Request for Information received on DD MM YYYY including revenue and expense forecast for the next X years. 2. We have referred to the information within these documents 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)