If you have read up on the 100 point innovation test, you will note that companies who are currently undertaking or have graduated from an eligible accelerator program are awarded 50 points. Find out about the type of requirements needed and or add a listing if you think your accelerator program is missing.
Australia already enjoys a reputation as one of the best places in the world to innovate and our accelerators are no exception. So why the short list of potentially eligible programs?
Well, we think it is a long list, as the ATO will not publish a listing, which was promised prior to commencement of the new laws. The trouble for the ATO (and us), is that eligibility isn't a sure thing as the definition can seem pretty grey until you get into the detail.
The accelerator program must meet four hurdles:
Selected entrepreneurs in an open, independent and competitive manner; and
Provides time limited support for entrepreneurs with start up businesses; and
Have previously run its accelerator programs for entrepreneurs, for at least 6 months; and
Such programs must have completed at least one cohort of entrepreneurs, prior to becoming eligible.
In ATO practice, it seem the criteria are tighter still, so be critical when assessing key guidance such as;
The 5 factors noted in the DIIS report into the role of accelerators in the Australian StartUp Ecosystem
Cohort-based Entry and Exit
A Structured Program
We would argue that perhaps all 5 are not pre-requisites; i.e. as many companies prefer not to trade upwards of 5-10% equity at low valuations, and do still achieve entry and acceleration within the same or equivalent programs.
Incubators, Co-working and Add hock StartUp Programs will not qualify
If you recognise that an eligible accelerator is taking an independent role as judge, in terms of the innovative nature of the StartUp, it should be clear that merely renting office space, or taking part in similar or part programs will be insufficient in itself to qualify the program as ESIC eligible.
The program must apply a merit-based screening process that is;
Eligibility is provided to the most meritorious StartUps, by way the entry criteria. In this way only legitimate programs can vouch the partial pre-qualification of ESIC's. ATO guidance indicates that any serious limitation on eligibility can raise doubts about the status of the entire program, though note that limiting candidates by reference affiliation (e.g. to a particular university, qualification or alumnus) has been shown to be acceptable in one ATO ruling.
Predominately fee driven programs are unlikely to qualify.
Programs must be time-limited;
3 to 6 months is considered typical
Programs must have a hard start and stop date
Cohort cycles should repeat throughout the year
If the established program term exceeds the expected 3-6 months it is unlikely the program will qualify.
Prior completion by at least on cohort of StartUps;
The program must have at least one prior set of graduates before it can ascribe ESIC status
Provision of sister/mirror programs can be counted towards the total
A cohort is a batch of entrepreneures, not merely two or three
If the entity providing the programs has changed, records must be kept to establishing that the programs are indeed mirror/sister programs regardless of branding, staff or venue similarities.
TIP: When you win entry into an accelerator, be sure to notify them of the holding / ESIC company you will use for fundraising. ESIC status does not attach to individuals, business names or brands. You need to formally recognise the company as the subject of the accelerator program.
TIP: Programs that are as rigorous as the Principals Based Test are more likely to apply than programs simply looking for viable business prospects (the I, in ESIC stands for innovation).
TIP: Independent investment of $50,000 by the accelerator program can add 50 points 100 points test
TIP: If your ESIC is unsure of its accelerator status for points, it can qualify by other points, or alternately via the principals based criteria or ATO application process
We are keen to grow our listing, ether by assessing ESIC's undertaking a program or by referral to the programs itself. If you know some, feel free to drop us a line. It's worth 50 points towards qualification and plenty of love from your fellow startups and investors alike.
Note: Accelerators programs can, in their own right, apply for a private binding ruling from the ATO. If in doubt you should contact the program administrator and request that they do this on behalf of all cohorts and startups attending the program.
We are aware that Antler, Blue Chili, Slingshot, The Energy Accelerator, CERI and Collective Campus have gained time limited ESIC PBRs at the time of writing. These favourable rulings are time limited and apply for specific tax years only.