Venture capital limited partnerships
We administer the Venture Capital Limited Partnership (VCLP) program jointly with The Department of Industry, Innovation and Science (DIIS).
A VCLP has:
- a general partner who manages the fund (fund manager), and
- limited partners who invest money.
Limited partners have limited liability and are not involved with its day-to-day management. Income and capital gains earned by eligible foreign limited partners from the disposal of investments may be exempt from tax.
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To be eligible for the tax incentives, a venture capital fund must remain registered as a VCLP. The Innovation Investment Committee (the Committee), a sub-committee managed by DIIS, registers VCLPs under the Venture Capital Act 2002.
Fund managers can apply to Innovation and Science Australia (ISA) at any time to register a VCLP if a fund meets registration requirements.
Key registration requirements are summarised below.
- The partnership is a limited partnership, established in Australia or in a country with which Australia has a double taxation agreement.
- All general partners are residents of Australia, or residents of a country with which Australia has a double taxation agreement.
- The partnership must have at least $10 million committed capital.
Committed capital is the sum of the amounts the partner may, under the partnership agreement, become obliged to contribute to the partnership.
A partnership that does not have at least $10 million committed capital may be granted conditional registration.
Other registration requirements on investments that a VCLP is allowed to make are known as investment registration requirements. Under these requirements, a VCLP must:
- only hold eligible venture capital investments (EVCIs)
- only carry on activities related to being a VCLP
- have all of its debt interests as permitted loans under the Venture Capital Act 2002.
A partnership that does not meet the $10 million committed capital condition for unconditional registration may be granted conditional registration. A partnership that has been conditionally registered must present sufficient evidence to satisfy the Committee that it is likely to raise at least $10 million and gain full registration within 24 months. Conditional registration expires after 24 months.
To gain full registration, an additional application that shows the partnership meets all requirements for registration must be submitted to the Committee.
The application for unconditional registration should be lodged no later than 60 days before the end of the conditional registration.
A VCLP must also meet the reporting requirements including:
- quarterly returns within one month of the end of each quarter
- an annual return within three months of the end of the financial year.
Registration can be revoked if the VCLP fails to meet any of these requirements.
Eligible venture capital investments
To maintain registration, VCLPs must only make investments that are EVCIs.
Many conditions must be met for an investment to be treated as an EVCI. The investment must:
- be in a company or unit trust (investee)
- not be, or will cease to be, a listed investment
- not represent more than 30% of the VCLP's committed capital
- be at-risk regarding the value and earnings from the investment
- be in an investee that has
- a total value of assets (before the investment is made) of no more than $250 million
- more than 50% of its employees and more than 50% of its assets located in Australia.
- a predominant activity not in property development or land ownership, construction or acquisition of infrastructure, finance, insurance or making passive-type investments. However, its predominant activity can be in developing technology for use in finance, insurance or making passive-type investments.
The total value of assets is the amount shown in the investee's latest audited accounts. Market value is instead used if the investee is not required to appoint an auditor and has not appointed one.
An auditor isn't required if either:
- the total value of assets is less than $12.5 million
- the investee is a small proprietary company or an equivalent unit trust.
The total value of assets includes assets of entities connected with the investee, if the assets are not already reflected in the value of the investee’s assets.
Activity of developing technology
An investee's activity to develop technology broadly covers its activities to create, understand and apply technological innovation for use in finance, insurance or making passive-type investments. These activities can be developing physical devices or intangibles, such as software. They do not include activities of merely using the technology in finance, insurance or making passive-type investments.
Developing technology is a process. Over time, it is likely to shift from developing the underlying technology to commercialising, building market share and establishing the use of the developed technology as industry practice. Whether technology is still being developed or is already developed is a question of fact.
An investee can also engage in activities ancillary or incidental to the activity of developing technology for use in finance, insurance or making passive-type investments.
Using or applying developed technology while trying to commercialise it may be ancillary or incidental to developing technology where its use or application is integral to developing technology. In these cases, other factors such as the frequency, nature and size of use must be considered in determining whether the activity is ancillary or incidental to developing that technology.
Example - Activity of developing technology
Invest Ltd is a company that develops software for use in making investments. Invest Ltd created Fast-Vest software and tested the software before making it available for purchase.
While developing Fast-Vest, Invest Ltd used it to conduct a small number of infrequent and low-value investment activities to test its functionality, identify issues and to ensure the product is fit for purpose.
Prior to launching Fast-Vest to the public, Invest Ltd invited a limited number of its existing clients, to undertake a small number of infrequent investment activities, of low-value for a limited period of time using Fast-Vest. The invitation to these clients formed part of Invest Ltd's marketing strategies for the software and also allowed it to collect data to refine the software.
After Invest Ltd launched Fast-Vest for public purchase, E-Bank Pty Ltd purchased and used Fast-Vest in its investment activities. Invest Ltd also used Fast-Vest to invest its profits from selling the software to generate additional income. This income ensures it has enough funds to start its next software development projects.
Prior to launching Fast-Vest to the public, Invest Ltd's activities with Fast-Vest are considered to be activities of developing technology for use in making passive-type investments when it is developing Fast-Vest. However, Invest Ltd’s use of Fast-Vest to generate additional income after launching the software to the public is not an activity of developing technology, nor is it ancillary or incidental to developing technology. Invest Ltd is merely using Fast-Vest to generate additional income and was no longer developing the software.
E-Bank Pty Ltd is merely using Fast-Vest to make investments. It is not considered to have engaged in an activity of developing technology for use in making passive-type investments.
End of example
Substantially novel application of technology
An investee can also engage in an activity on a substantially novel application of technology related to finance, insurance or making passive-type investments. The investee needs to obtain a finding from Innovation and Science Australia (ISA) that its activity is one that applies technology in a substantially novel way.
For eligibility and registration enquiries:
For an ISA finding on substantially novel application of technology:
Eligibility and registration requirements for the Venture Capital Limited Partnership (VCLP) program.