Overview of the Venture Capital Limited

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Overview of
Venture Capital Limited Partnerships
Policy objective
The Venture Capital Limited Partnerships (VCLP) programme is designed to increase the
amount of foreign investment in the Australian venture capital sector by providing certain
foreign investors (eligible venture capital partners) in a VCLP with an exemption from
capital gains tax on profits from eligible venture capital investments made by the VCLP.
Venture Capital Limited Partnerships
[s9-1 Venture Capital Act 2002]:
Fund managers seeking to raise a new venture capital fund to make investments in
Australian businesses with total assets of not more than $250 million may apply to
Innovation Australia (the Board) for registration as a VCLP under the Venture Capital Act
2002 (the Act). The fund must be structured as a limited partnership and have committed
capital of at least $10 million. An application form is available from AusIndustry; email
venturecapital@industry.gov.au
Eligible venture capital investments
[s118-425 Income Tax Assessment Act
1997]:
An eligible venture capital investment is an investment made by a registered (in certain
circumstances a conditionally registered VCLP can make investments) VCLP that meets
the requirements of s118-425 of the Income Tax Assessment Act 1997. Briefly it is shares
or options in unlisted Australian companies or unit trusts with total assets of no more than
$250 million, the foreign holding company of such businesses, or listed Australian
companies or unit trusts that are delisted within 12 months. The business cannot have
property development, land ownership, finance or construction as its primary activity.
Tax benefits for foreign investors
Eligible venture capital partners
[s118-420 Income Tax Assessment Act 1997]
Foreign investors that are exempt from tax in their country of residence qualify for the
capital gains tax exemption. The exemption is also available to foreign investors that own
no more than 10 per cent of a VCLP.
Tax benefits for VCLP managers
The initiative also improves the tax treatment for the general partners (managers) of
VCLPs. It provides for Venture Capital Management Partnerships (VCMP) which allow
the treatment of a general partner’s carried interest (the performance element of their
income from managing) to be taxed on capital account rather than revenue account. This
provides a significant reduction on the amount of tax paid on any performance bonus
earned.
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Venture Capital Management Partnership (VCMP):
A limited partnership that is a general partner of a VCLP and only carries on activities
related to being a general partner.
What are the incentives to use a VCLP?
“Eligible venture capital partners” that receive gains from the disposal of “eligible venture
capital investments”, made through a VCLP are exempt from capital gains tax.
Why was the limited partnership structure chosen to address
this policy objective?
Limited partnerships are the preferred vehicle for venture capital investments world-wide.
Venture capital investors usually invest in venture capital through limited partnerships or
funds of funds to broaden their portfolio in the most cost effective manner.
What is a limited partnership?
A limited partnership is an organisation comprising of a general partner, who manages the
fund, and limited partners, who invest money but have limited liability and are not
involved with the day-to-day management of the fund. The limited partners receive
income, capital gains, and tax benefits.
Registration as a VCLP
Registration requirements
(Division 9, Venture Capital Act)
A limited partnership established by or under a law in force on, or in part of: Australia: or
foreign country in respect of which a double tax agreement (as defined in Part X of the
Income Tax Assessment Act 1936) is in force that is an agreement of a kind referred to in
subparagraph (b)(i), (ia), (ii), (iii), (iv) or (v) of that definition.

Partnership agreement must run for between five and 15 years.

Must have committed capital of at least $10 million.
Application for registration
(Division 11, Venture Capital Act)

A general partner of a limited partnership can apply to the Board at any time.

Application must be in writing and include information about the general partner,
limited partners, a copy of the partnership agreement, capital raising documents and
any other information the Board may require.

The Board must decide application within 60 days but may extend by 60 days.
Conditional registration
(Division 13, Venture Capital Act)
A limited partnership may receive conditional registration as a VCLP if it does not meet
the registration requirements but the Board is satisfied it will within 24 months.
Registration
(Division 13, Venture Capital Act)
Once registered, a VCLP must operate as a VCLP in accordance with the appropriate
legislation and only make eligible venture capital investments. VCLPs are required to
report quarterly to the Board on investment activities.
Further Information
Please contact the 13 28 46, business.gov.au or email venturecapital@industry.gov.au.
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