A programme to provide ESVCLP with a flow-through tax incentive and a complete tax exemption on an investor’s share of a fund’s income to increase investment in early stage venture capital businesses.

Early Stage Venture Capital Limited Partnerships (ESVCLP)

Early Stage Venture Capital Limited Partnerships (ESVCLP)

The Early Stage Venture Capital Limited Partnerships (ESVCLP) aims to stimulate the Australian early stage venture capital sector. It provides the fund manager flow-through tax treatment and, for investors, tax exemptions on their share of returns.

Innovation and Science Australia’s Innovation Investment Committee (the Committee) registers ESVCLPs under the Venture Capital Act 2002.

 

Background

Generally, ESVCLPs will make early stage venture capital investments in companies or unit trusts where the investment:

  • complies with the ESVCLP’s approved investment plan
  • does not represent more than 30% of the ESVCLP’s committed capital
  • is an acquisition of new shares or units (limited provision to acquire pre-owned).
  • is at-risk and the investee company must meet the following requirements:
    • the total value of its assets is not more than $50 million
    • at least 50% of employees and at least 50% of assets are located in Australia
    • its predominant activity is not in property or land development, finance, insurance, construction or infrastructure or making investments.

The ESVCLP must hold the investment for a minimum of 12 months.

 

Objectives

The taxation benefits for ESVCLPs are:

  • flow-through taxation treatment for registered venture capital partnerships
  • exemption to investors (limited partners) from capital gains tax on their share of profits made by the partnership
  • the fund manager can claim their carried interest in the partnership on the capital account, rather than revenue
  • limited partners receive a non-refundable carry forward tax offset of up to 10% of their eligible contributions.

The extent of the tax benefit depends on a number of factors. Fund managers seeking to register a partnership should seek professional tax advice.

 

Eligible Projects

The partnership must invest in:

  • new shares, options or units, or convertible notes that have an equity characteristic, in Australian businesses (companies or trusts):
    • where the total value of its assets is no more than $50 million
    • that does not have property development, land ownership, finance or construction as their predominant activity and
    • that is unlisted.

 

Eligible Applicants

You can apply for an ESVCLP if you:

  • are a limited partnership or an incorporated limited partnership
  • are established in Australia or a foreign country that has a double tax agreement with Australia
  • have a general partner who is a resident of either Australia, or a foreign country that has a double tax agreement with Australia
  • have at least $10 million and not more than $200 million committed capital and
  • no investor contributes more than 30% of the partnership’s committed capital.

To register an ESVCLP, a partnership must:

  • be structured as an incorporated limited partnership
  • be established in Australia or a country with which Australia has a double tax agreement
  • have a qualifying partnership agreement that:
    • remains in existence for not less than five years and not more than 15 years
    • requires partners to contribute capital when required
    • prohibits the addition of new partners except as provided for in the agreement
    • prohibits increases in committed capital except as provided for in the agreement
    • confers on a general partner the right to require partners to contribute their committed capital to the partnership
    • includes a plan which outlines its intended investment activities.
  • have a general partner that is a resident of either Australia, or a foreign country that has a double tax agreement with Australia
  • have a plan to make eligible venture capital investments in early stage venture capital businesses
  • have access to the skills and resources to implement its approved investment plan
  • have capital of at least $10 million (a partnership that does not satisfy this requirement may be eligible for conditional registration) and not more than $200 million
  • not have any partner that contributes more than 30% of the partnership’s committed capital
  • not form part of a bigger fund (or attached to a unit trust), is stand-alone.

 

Timing

Applications open on an ongoing basis.

 

More Information