Venture capital tax concession: overview

Background

The venture capital tax concession consists of:

• the 2002 concession, which provides certain tax exemptions to 'tax-exempt foreign residents', 'foreign venture capital fund of funds' and certain other non-residents from prescribed countries
• the 1999 concession, which provides exemptions for capital gains on 'venture capital equity' by certain tax-exempt 'foreign super funds'
• the early stage venture capital tax concession, which provides tax concessions to Australian residents and foreign residents investing in early stage venture capital activities.

The 2002 concession does not provide an exemption for Australian residents. However, Australian residents may participate through certain limited partnerships for which flowthrough tax treatment is provided. Special treatment is also provided for the venture capital manager's share of investment gains, known as a 'carried interest'.

For the 2007-08 income year and onwards, the eligibility requirements for the 2002 concession have been relaxed. Investments in companies and unit trusts not located in Australia may be eligible and the tax exemptions generally extend to residents of any foreign country.

Under the 1999 concession, Australian resident super funds are allowed a special franking rebate, which enables them to receive venture capital gains free of tax through pooled development funds.

For the 2007-08 income year and onwards, the early stage venture capital tax concession provides an exemption from tax to all partners of the early stage venture capital limited partnership for their share of income and gains derived from, or from disposal of, early stage venture capital investments.