Tax benefits and support to stimulate Australia's venture capital sector

The Venture Capital Limited Partnership (VCLP) program aims to stimulate Australia's venture capital sector. The program:

• helps fund managers attract pooled capital, so they can raise new venture capital funds of over $10 million to invest in innovative Australian businesses
• offers tax benefits to fund managers and eligible foreign investors
• connects investors with innovative Australian businesses
• helps Australian businesses grow by receiving financial support

There is no 'early stage' test for investments as there is with Early Stage Venture Capital Limited Partnerships.

Fund managers can apply to Innovation and Science Australia to register a partnership as a VCLP.

The Department of Industry, Science, Energy and Resources and the Australian Taxation Office (ATO) jointly administer the program on behalf of the Australian Government.

A VCLP must be a new partnership rather than a restructured existing partnership.

Applicants must apply to Innovation and Science Australia for registration under the Venture Capital Act 2002 (VCA). Innovation and Science Australia has delegated its decision-making powers for VCLPs to authorised delegates.

A delegate will register a partnership as a VCLP if it meets certain eligibility criteria.

If registered, a VCLP can then make venture capital investments in companies or unit trusts with total assets of not more than $250 million.

The investments must also meet other criteria and be held for a minimum of 12 months.

A VCLP must meet ongoing registration and reporting requirements under the VCA to maintain its registration.

Once registered both eligible foreign investors and fund managers can claim tax benefits. VCLP tax benefits differ for eligible foreign investors and fund managers.

What are the eligibility criteria?

You can apply to register if you are:

• a new venture capital fund
• a limited partnership or an incorporated limited partnership
• established in Australia or a country that has a double tax agreement with Australia

You must have:

• a general partner (often also the fund manager) who is a resident of either Australia or a country that has a double tax agreement with Australia
• at least $10 million in committed capital (although a partnership that doesn't satisfy this requirement may be eligible for conditional registration)

In addition, you must have a qualifying partnership agreement that:

• ensures the partnership remains in existence for between 5 and 15 years
• requires partners to contribute capital when required
• prohibits adding new partners except as provided for in the agreement
• prohibits increasing committed capital except as provided for in the agreement
• confers on the general partner the right to require partners to contribute their committed capital to the partnership
• includes a plan outlining the partnership’s intended investment activities

All information should be read in conjunction with the relevant legislation:

• Venture Capital Act 2002
• Income Tax Assessment Act 1997
• Income Tax Assessment Act 1936

How do you apply?

If you would like to apply for registration as an VCLP, complete and submit the online application  form.

You’ll need to include the following documents.

• A certificate of registration as a limited partnership or an incorporated limited partnership. This is issued by the relevant state or territory government authority.
• A certificate of registration if the general partner is a venture capital management partnership.
• An investment plan that is included in the signed partnership deed.
• A signed limited partnership deed which includes the investment plan and includes the clauses set out below.
• Details of all individual investors and their committed capital. The delegate may request documentary evidence of committed capital.
• The partnership's information memorandum or any public offer documents.
• CVs of the key people active in your partnership.

The partnership deed must include the following clauses (use the wording below):

• Require partners to contribute their committed capital as and when required under the agreement.
• Prohibit the addition of new partners to the partnership except as provided for in the agreement.
• Prohibit increases in the partnership's committed capital except as provided for in the agreement.
• Confer on a general partner the right to require partners to contribute their committed capital to the partnership.
• The partnership must remain in existence for a period not less than 5 years and not more than 15 years from formation of the partnership (this is the date the partnership was registered as a limited partnership or incorporated limited partnership).

The delegate may request further information, documents or evidence relating to the application for registration.

Many successful Australian businesses have accessed venture capital to help them develop their innovations and achieve commercial success.

Venture capital funds have also been able to grow and prosper as a result of government venture capital initiatives.