All about innovation

People fond of the KISS principal rarely find themselves engaged in ESIC. Its too far from the comfort zone and as such, we're frequently confronted with ESIC assessments that are far from vanilla.

Innovative advisers often put in place complex foundations, for reasons such as; 

 - Asset protection
 - Licencing 
 - International markets
 - CGT planning
 - Exit, ETC

The concern is that many of these designs and models maybe unhelpful when one considers the law's pertaining to ESIC. 

Take the 'vanilla' separation of IP and trading strategy. Holding PL with two 100% owned subsidiaries.

For a start you've got issues with R&D, but that aside, will the ATO agree that investment in Holding PL is investment in an ESIC when its actually IP co that owns the innovation and trading co that's engaged in commercialisation?

We've seen this exact model rejected by the ATO, even with consideration of the consolidation regime.

OK, that may not be the result in trial, or in other circumstances, however its a good clue regarding the policy interpretation and may result in many early stage innovation companies becoming ineligible ESIC's.

Its a developing area and one of considerable interest.

Consider a two company structure where company B acquires the IP of company A. Good from an investment clarity perspective. Innovation = share ownership = commercialisation, however more difficult for consideration of the early stage, revenue, expenditure and incorporation tests.

For Startups, fail fast & pivot aren't just buzz words, they're a method statement, so the intersection of ESIC laws, complex structuring and innovation is sure to cause more than a few trials before these complexities are drawn out.

Don't drown in complexity; Get your MVP, funding, move forward, fast! 

That's what ESIC is trying to incentivise,

Cheers,

Tom

Towards the end of the third quarter of last year I turned the corner in my regard of ATO private ruling for ESIC's. 

It wasn't just the existence of some quality guidance in the determinations and the bonus of having rulings cover not just the day of investment, but an entire year. It was the approach and speed that rulings were progressing.

Not to name names, but to say we'd know some happy companies isn't a stretch ;0)

Opening the new calendar year, we've seen a flood of PBR's, which is a good sign for demand. The trouble is keeping things moving, and as expected the early trickle is now turning tropical, with over 100 applications to hand with the ATO.

We're glad that some of the early Jan/Feb application are affiliated, however you'd best be quick if that seed / series A is closing before June and the ATO ruling is a deal maker/breaker.

Feel free to get in touch if you'd like some guidance,

Cheers,


Tom

We have previously noted the frequent presumption of high R&D expenditure in ESIC pre assessments, often being something that comes unstuck on further review.

Take note of recient ATO comments;

Startups should ensure that activities are generating new knowledge or undertaking experimentation of new technologies; that the technical uncertainty being addressed by the activity is clearly identified; and that the activities claimed are directly related to supporting experimental activities.

Fortunately / typically we are helping to do good work for the ATO, however that service is limited and we highly recommend you seek expert assistance from the likes of www.rimon.com.au

Knowing where your headed is half the battle, so avoiding pitfalls and deadends is an opportunity, not a knock back.

Not all ESIC's are eligible for R&D tax claims.

Happy commercialisation,


Tom

Today we were able to fully verify the ESIC status of a company. 

While Joe average might have concluded the same it's taken 2 months, lengthy meetings, lawyers, accountants and the ATO to verify the in principal claim.

Yet with all that we are pleased. It's a result and the purchase proof that a bunch of investors have been waiting on, and that's the message. 

Status confirmation isn't always quick or easy. It takes time.

Please don't make the mistake of confirming after you have investors ready to go.... chances are you'll lose some of them and or break something along the way.

Hopefully that's some milestones and not the bank,

Start verifying now, May and June will be awfully busy,

Tom

Having never visited the capital of Norway, the exotic and magical snow covered vistas form a backdrop to a very trick late night read. I am of course referring to the OECD Olso Manual.

Taking a deep dive into the manual, which is favoured and referenced by our legislators helps define all important tests for innovation. Take this extract regarding the tricky example of innovative services; 

 “innovations in services can include significant improvements in how they are provided (for
 example, in terms of their efficiency or speed), the addition of new functions or characteristics
 to existing services, or the introduction of entirely new services.”

Though services tend to be iterative and routinised, so conflicting perspectives could easily arise. Luckily the manual offers some guidance, conceding that;

 'services tend to be continuous processes, consisting of a series of incremental changes in products and processes'

You may find that disrupted service type offerings are in fact ripe fruit for early stage innovation and indeed eligible for the tax concession all other things being equal.

Happy travels,


​Tom