Tax law changes to ensure limited partnerships that are separate legal entities are eligible to access venture capital tax concessions were announced today by the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan.
Limited partnerships that are separate legal entities will now be able to register as venture capital limited partnerships and Australian venture capital fund of funds under the Venture Capital Act 2002.
This will remove an impediment to the use of partnerships with separate legal status as the preferred investment vehicle for venture capital.
“Incorporated limited partnerships registered under State and Territory laws as well as those partnerships registered in countries whose tax exempt residents qualify for the venture capital tax concessions will benefit from these changes,” Senator Coonan said.
The amendments will take effect from today.
Last year the Government introduced tax concessions designed to encourage new foreign investment into the Australian venture capital market and to further develop Australia’s venture capital industry.
A key element of the Government’s venture capital reforms was to tax venture capital limited partnerships (VCLPs) and Australian venture capital fund of funds (AFOFs) as flow through vehicles in accordance with internationally recognised best practice for venture capital.
Under this new regime, certain tax exempt and other eligible foreign investors are exempt from income tax on profits or gains in equity investments made by a VCLP or an AFOF that is a partner in a VCLP, in Australian companies that satisfy eligibility criteria.
“These amendments will ensure that partners in limited partnerships that are separate legal entities will qualify for the venture capital tax exemption if they meet the eligibility criteria, and that they will be taxed on their share of the income, profits, gains and losses of the partnership on a flow through basis,” Senator Coonan said.
A transitional rule will allow registration of a limited partnership as a VCLP or AFOF to be backdated if the partnership is a separate legal entity, meets the requirements for registration and applies for registration but cannot be registered because it is not recognised as a partnership under the income tax law.
In such cases the transitional rule will allow the PDF Registration Board to backdate registration to the date registration would have been granted if the amendments had been enacted today.