09 May 066 Improved treatment of venture capitalThe Government will introduce a new investment vehicle called an early stage venture capital limited partnership (ESVCLP) which will, from 1 July 2006, progressively replace the existing pooled development funds (PDF) arrangements. The Government will also make changes to the existing venture capital limited partnership (VCLP) regime.
The ESVCLP will provide flow through tax treatment to domestic and foreign partners with the income, both revenue and capital, received by the partners being exempt from taxation. As the income will be exempt from tax, the investor will not be able to deduct investment losses.
To qualify for the tax exemption: the ESVCLP fund size cannot exceed $100 million; an individual investment in any one company cannot exceed 30 per cent of the ESVCLP fund’s committed capital; the total assets of the investee company cannot exceed $50 million prior to the investment; the ESVCLP must divest its assets in the investee company once the total assets of the investee company exceed $250 million; and the ESVCLP must meet certain regulatory and reporting requirements. The existing pooled development fund programme will be closed to new registrations after 31 December 2006.
The existing VCLP regime will be enhanced by: removing restrictions on the country of residence of investors; reducing the minimum partnership capital required for registration to $10 million; allowing investment in unit trust and convertible notes as well as shares; allowing appointment of auditors for investee companies to occur at the end of the financial year of the investment; and relaxing the requirement that 50 per cent of assets and employees must be in Australia for 12 months after the making of the investment.
For a copy of the Treasurer's press release No 37, 9 May 2006, go here