Early Stage Test

What makes an Early stage innovation company depending on the age of the company. If the company is less than 3 years old the requirements are as follows

- The company was incorporated within 3 years or registered on the ABR within 3 years

- The company and its wholey owned subsidiaries had under $1 million in income over the last income tax year

- The company had assessable income of $200,000 less in the previous income year

- The company equities are not listed on any stock exchange 

If the company is 3 or more years old the requirements are as follows

- The company was incorporated within 3 years to 6 years or registered on the ABR within 3 years

- The company and its wholey owned subsidiaries had under $1 million in income over the last 3 income tax year

- The company had assessable income of $200,000 less in the previous income year

- The company equities are not listed on any stock exchange 

Initally, the yearly count back applied on a tax lodgment basis, i.e. a company incorporated on 14 June 2020 would be 1 ESIC year old by the 30 June 2020 due to its first tax year ending. Thanks to tax law amendments, that anomaly has been amended and ESIC can enjoy up to a full 6 years of eligibility (all other things considered).

The $200,000 income test 

Firstly and most importantly note that this requirement relates to the prior income tax year. We've seen start-ups with Millions in revenue maintain ESIC status, however most ESIC's are pre-revenue or early revenue growth companies.

Start-up accounts may not accurately reflect the prior year assessable income of the company. Investors are encouraged to consider the finalised tax returns prepared, including any 'pass through' or Grant revenue.

Only income from the Accelerating commercialisation grant is excluded by way of legislation.

Less than 1 Millon dollars in expenditure

Again this test applies to the prior income tax year or years expenditure, depending on the age of the company. This test makes it harder for companies that are older to qualify (by accumulating expenditure from the prior 3 income tax returns).

Note that this is an expenditure test, rather than cashflow or capital deployed, so Asset acquisitions will not count towards the expenditure.

Ideally you will consider the company tax return, or otherwise have a professional review the company’s management accounts.