Tax Laws Amendment (2004 Measures No. 3) Act 2004 (105 of 2004)

Schedule 1   Venture capital

Part 1   Tax amendments

Income Tax Assessment Act 1997

11   At the end of section 118-425

Add:

Investment in holding companies

(11) A company is taken to meet the requirements of subsections (3) and (4) if:

(a) a *VCLP, an *AFOF or an *eligible venture capital investor acquires *shares or options in the company; and

(b) the company was formed solely for the purpose of investing in another company; and

(c) within 6 months after the investment referred to in paragraph (a) was made, the company uses the money from that investment:

(i) in acquiring shares or options in the other company (including incidental costs); or

(ii) on administrative expenses associated with the investment; or

(iii) making loans to the other company; and

(d) the other company meets the requirements of subsections (2) to (7) within that period of 6 months and after the end of that period.

Note: The requirement in paragraph (11)(d) is ongoing (unless the company becomes the head company of a consolidated group or consolidatable group: see subsection (16)).

Application to consolidated or consolidatable groups

(12) This section applies to a *consolidated group or *consolidatable group as if:

(a) the *head company of the group carried on all of the activities that are carried on by *subsidiary members of the group; and

(b) the assets, employees and income of the subsidiary members of the group were assets, employees and income of the head company; and

(c) each subsidiary member of the group were parts of the head company rather than separate entities.

Ineligible activities

(13) These activities are ineligible activities:

(a) property development or land ownership;

(b) finance, to the extent that it is any of the following:

(i) banking;

(ii) providing capital to others;

(iii) leasing;

(iv) factoring;

(v) securitisation;

(c) insurance;

(d) construction (including extension, improvement or up-grading) or acquisition of infrastructure facilities (within the meaning of section 93L of the Development Allowance Authority Act 1992) or related facilities (within the meaning of section 93M of that Act), or both;

(e) making investments, whether made directly or indirectly, that are directed to deriving income in the nature of interest, rents, dividends, royalties or lease payments.

For the purposes of this subsection, activities that are ancillary or incidental to a particular activity are taken to form part of that activity.

PDF Board discretion

(14) A company is taken to meet the requirements of subsection (3) even if it fails to satisfy at least 2 of the requirements in that subsection if the *PDF Board determines under section 25-15 of the Venture Capital Act 2002 that:

(a) the company’s primary activity is not an ineligible activity mentioned in subsection (13); and

(b) the failure is temporary and did not exist at the time the investment referred to in subsection (1) was made and, if it has been disposed of, when it was disposed of.

Convertible notes and convertible preference shares

(15) To the extent that an investment by an entity consists of the acquisition of a *share in a company by converting a *convertible note, or a convertible preference share, issued by the company, the investment is, for the purpose of determining whether the company meets the requirements of subsections (2) to (7), taken to have been made at the time when the entity last acquired the convertible note or convertible preference share.

Subsection (11) stops applying

(16) Subsection (11) stops applying to the company first referred to in that subsection if the company becomes the *head company of a *consolidated group or *consolidatable group.