CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Australia To Improve Tax Treatment of Venture Capital

Australia To Improve Tax Treatment of Venture Capital

by Mary Swire,, Hong Kong

20 February 2013

The Australian Government has announced changes to the tax treatment of venture capital, measures unveiled alongside the publication of the Board of Taxation's review of the system.

The Government's reforms come as part of the Venture Australia package proposed by the Prime Minister, the Treasurer and the Minister for Industry and Innovation. The aim is to increase investment in the venture capital industry.

Under the package, three major changes will be implemented. Firstly, the minimum investment capital required for entry into the Early Stage Venture Capital Limited Partnership (ESVCLP) program will be lowered from AUD10m to AUD5m. The intention here is to facilitate increased funding from "angel" investors. Secondly, the ESVCLP and Venture Capital Limited Partnership (VCLP) programs will be administered as a single regime, to provide clearer entry for investors and managers wishing to use these investment vehicles. Finally, the Pooled Development Fund program, closed to new registrants since 2007, will be phased out over a number of years.

The Board of Taxation reviewed the taxation arrangements currently available under the venture capital limited partnerships regime, concluding that a number of improvements can be made to the operation of the VCLP and ESVCLP regimes, so that they better meet the objective of increasing investment in high risk start-up and expanding businesses in the Australian venture capital sector.

In the case of VCLPs, the Board recommended that any gains or losses made by a VCLP on the disposal of an eligible venture capital investment held for 12 months, which flow through to partners, should be deemed to be on capital account for eligible domestic partners. Further, an Australian Managed Investment Trust (MIT) should be able to invest as a limited partner in a VCLP and retain its MIT status, while the restriction for foreign venture capital funds of funds should be removed provided a fund is widely held.

Turning to ESVCLPs, the Board concluded that, subject to conditions, an investee entity should have greater flexibility to invest in other complementary ventures. The holding company exception should also be modified, to allow an ESVCLP to invest in a holding company that has existing interests in multiple subsidiaries. The Board further believes that Innovation Australia should have discretion to allow ESVCLPs to exceed the 20% foreign investment cap, provided the investment has a material national benefit as associated with the commercialization of Australian research and development.

In addition, an Australian MIT should be able to invest as a limited partner in an ESVCLP and retain its MIT status. Finally, in a more explicitly tax related vein, the Board recommended that where a limited partner in an ESVCLP is a trust (which is not taxed as a corporate), the investors in that trust should not be prevented from accessing the special tax treatment accorded under the ESVCLP regime.

The Government says that it agrees with all of the Board's recommendations, either in full or in principle. According to Assistant Treasurer David Bradbury: "These reforms will help Australia grow new innovative businesses and will promote Australia as a location for investment in innovation."


TAGS: tax | investment | business | holding company | tax incentives | Australia | ministry of finance | tax authority | venture capital | tax reform | research and development

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »