Background
We jointly administer the 2002 venture capital tax concession with Innovation Australia.
The concession was introduced in 2002 as an incentive for foreign investors from specified countries to invest in the Australian venture capital industry to:
- develop Australian industry
- provide a source of equity capital for relatively high-risk start-up and expanding businesses that find it difficult to attract investment through normal commercial mechanisms.
In certain circumstances, the concession is available to:
- tax-exempt foreign residents from Canada, France, Germany, Japan, United Kingdom and the United States of America
- foreign venture capital fund of funds managed and controlled in the countries named above
- taxable foreign residents from the countries named above - or from the following countries whose committed capital in the venture capital limited partnership (VCLP) or Australian fund of funds (AFOF) is less than 10%
- Finland
- Italy
- the Netherlands (excluding the former Netherlands Antilles)
- New Zealand
- Norway
- Sweden
- Taiwan.
Specifically, the concession provides for both of the following:
- flow-through tax treatment to two newly created venture capital investment vehicles - the VCLP and the AFOF where an investment was made either directly or through a VCLP
- an exemption from income tax on profits (capital or revenue) from the disposal of eligible Australian investments by either of the following
- partners or members of these investment vehicles
- 'eligible venture capital investors' who invest directly in such eligible Australian investments.
For the 2007-08 income year and later years, the eligibility requirements for concessional taxation treatment for foreign residents investing in VCLPs and AFOFs have been relaxed and tax concessions are now provided, in certain circumstances, to all of the following:
- tax-exempt foreign residents of any foreign country, except a general partner of a VCLP or an ESVCLP
- a 'foreign venture capital fund of fund' established in any foreign country that is either a foreign resident, or in which every general partner is a foreign resident
- taxable foreign residents of any foreign country (except a general partner of a VCLP or an ESVCLP) where the sum of the following is less than 10% of the partnership's committed capital
- their committed capital in the partnership
- the committed capital of connected entities.
The concessions have also been extended to apply, in certain circumstances, to investments made in companies and unit trusts that are not located within Australia.
When an eligible venture capital investment is disposed of, the revenue gains or profits may be exempt from income tax where certain conditions are met and there is no deduction for losses. Where there is a capital gains tax event, capital gains or losses may be disregarded.
This treatment applies to all of the following:
- eligible venture capital partners in a VCLP where the VCLP makes the relevant investment
- eligible venture capital partners in an AFOF where the AFOF is a partner in a VCLP that made the relevant investment
- eligible venture capital partners in an AFOF where the AFOF invested directly
- eligible venture capital investors who invest directly.
The tax exemption allowable under the 2002 venture capital tax concession is available to eligible venture capital partners and eligible venture capital investors from 1 July 2002. Registration with Innovation Australia is required for VCLPs, AFOFs and non-resident tax-exempt investors that make direct investments - that is, eligible venture capital investors.
The eligible venture capital investor, or the general partner in the case of a VCLP or AFOF, completes a registration application form and lodges this and other required documentation with Innovation Australia.
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For more information about registration, visit the AusIndustry website and go to Venture Capital.
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VCLPs and AFOFs that do not provide all the necessary information at the time of making the application may be granted conditional registration. If so, full registration will be granted after all registration requirements are met.
To find the primary legislative references for the 2002 venture capital tax concession, refer to the following on our Legal Database:
For more information:
Last Modified: Tuesday, 10 May 2011