Early stage venture capital tax concession: frequently asked questions

What is the concession?

For the 2007-08 year and later income years, the venture capital regime has been expanded to provide tax concessions for Australian residents and foreign residents investing in early stage venture capital activities through a new investment vehicle called an early stage venture capital limited partnership (ESVCLP). The ESVCLP is designed to encourage investments in start-up enterprises with a view to commercialisation of the activity and the introduction of the ESVCLP will stimulate activity in the venture capital sector and enhance the development of skills and the formation of capital.

This is achieved by:

• treating ESVCLPs as ordinary partnerships, or 'flow-through' vehicles, for tax purposes, and
• exempting all partners of an ESVCLP from tax on their share of the income and gains derived from, or from disposal of, eligible early stage venture capital investments.

The concession in relation to gains on CGT events in relation to eligible venture capital investments is provided in certain circumstances to:

• partners in limited partnerships unconditionally registered as ESVCLPs
• eligible venture capital partners in Australian venture capital fund of funds (AFOFs) that make investments through ESVCLPs or directly, and
• eligible venture capital investors.

The concession in relation to income from, or from disposal of, eligible venture capital investments is provided in certain circumstances to:

• partners in limited partnerships unconditionally registered as ESVCLPs, and
• partners in AFOFs that make investments through ESVCLPs or directly.

There is no exemption from income tax to the extent that the income is a payment of a 'carried interest' of a general partner in an ESVCLP or AFOF.