Minister for Revenue and Assistant Treasurer Senator Helen Coonan today outlined details of the new arrangements to deliver the Government's election commitment to provide Australia with a world's best practice investment vehicle for venture capital.
Senator Coonan said the measures are a crucial part of the Government's program to encourage new foreign investment into the Australian venture capital market and to further develop the venture capital industry. They will also increase Australia's access to overseas expertise in venture capital.
The Australian venture capital market has experienced significant growth over the past decade, including through foreign investment.
"These measures will unlock the potential for more rapid growth of Australia's venture capital market, particularly through the increased support of tax-exempt foreign investors, and thereby promote expansion of the venture capital industry," Senator Coonan said.
"This is a critical element in realising the innovation potential, identified by the Prime Minister in Backing Australia's Ability, as the key to Australia's future prosperity.
"The venture capital concessions to be implemented by Government are intended to increase foreign investment into the Australian venture capital market by establishing a internationally competitive framework for venture capital investments."
An internationally competitive framework will be achieved in two ways.
Firstly, by amending the tax treatment of two types of limited partnerships: venture capital limited partnerships and Australian venture capital fund of funds. These limited partnerships will be taxed as flow-through vehicles in accordance with internationally recognised best practice for venture capital.
Secondly, foreign investors who are tax-exempt residents of specified jurisdictions or partners in flow-through limited partnerships that satisfy certain conditions will be exempt from tax on profits on the disposal of investments in eligible investee companies.
The full amount of any investment made into an eligible investee company before the value of the assets of that company exceed $250 million will be eligible for the concession.
"This dual approach recognises that venture capital limited partnerships with flow-through taxation treatment are the preferred investment vehicles internationally and that countries competing with Australia for capital offer exemption from taxation on gains from the sale of those investments," Senator Coonan said.
"These measures will therefore bring Australia into line with what is currently recognised as "best practice" within the international market."
The measures will also extend the tax exemption for eligible investors to:
- All tax-exempt residents of Canada, France, Germany, Japan, the United Kingdom or the United States of America;
- Venture capital fund of funds established and managed in Canada, France, Germany, Japan, the United Kingdom or the United States of America; and
- Taxable residents of Canada, Finland, France, Germany, Italy, Japan, the Netherlands (excluding the Netherland Antilles), New Zealand, Norway, Sweden, Taiwan, the United Kingdom or the United States of America, holding less than 10% of the committed capital in a venture capital limited partnership or an Australian venture capital fund of funds.
The Government will give further consideration to prescribing additional appropriate countries as required.
Apart from the creation of Australian venture capital fund of funds as flow-through tax vehicles, the measures do not change the current taxation treatment of Australian resident investors.
The Government will also establish a registration process for venture capital limited partnerships, Australian venture capital fund of funds and eligible venture capital investors to ensure the integrity of the measures. The PDF Registration Board will administer the registration of these limited partnerships and, supported by AusIndustry and the Australian Taxation Office, will provide the public face and a first point of contact for the measure.
To ensure the new arrangements are understood in offshore markets, Senator Coonan advised that the national investment agency, Invest Australia, will be asked to develop a strategy to promote the new arrangements in the international marketplace in collaboration with industry.
In reaching these decisions on the detail of its venture capital policy the Government has consulted extensively with the venture capital industry and it is expected that consultation with the industry will continue during the implementation of the measure.
Primary legislation will be introduced into Parliament as soon as possible and supplementary legislation dealing with carried interest will be introduced as soon as practicable after further consultation with industry.