NO.081

VENTURE CAPITAL

Venture capital tax concessions will be extended as part of a major program

by the Government to boost investment in venture capital. The Treasurer, the

Minister for Industry, Science and Resources and the Minister for Communications,

Information Technology and the Arts today announced the extension, costing $20

million a year from 2003-04.

The Government will provide venture capital limited partnerships with flow

through taxation treatment. This will provide Australia with a world’s

best practice investment vehicle for venture capital.

Under the current rules, there is an exemption for capital gains on venture

capital investments where made by non-resident pension funds from certain countries.

The exemption will be extended to other tax-exempt non-resident investors, including

endowment funds and venture capital fund-of-funds vehicles (consultations with

the industry will address definitions), and taxable non-residents holding less

than 10 per cent of a venture capital limited partnership. These investors will

be able to invest in eligible venture capital investments through an Australian

resident venture capital limited partnership or through a non-resident venture

capital limited partnership.

In the first instance the exemption will apply to investors from the United

States, United Kingdom, Japan, Germany, France and Canada. Consultation with

the industry will examine whether this list of countries should be expanded.

The Government’s decision represents a major boost to the Australian

venture capital market and is expected to result in increased international

investment in Australian venture capital. It will also increase Australia’s

access to overseas expertise for start-up and expanding companies.

These changes build upon the Government’s previous decision to allow tax exempt

pension funds to directly invest capital gains tax free in venture capital projects

under $50 million.

Venture capital is an important ingredient in converting great Australian

ideas into new businesses and extra jobs. Venture capital is also an important

source of funding for entrepreneurs to commercialise new ideas. The Government

has already introduced a range of measures to encourage investment in venture

capital, including the recently announced $75m Pre-Seed Fund and these new measures

go an extra step towards developing our venture capital market.

The Government is acting to ensure that the incentive is available for more

innovative investments, directed to the earlier end of the venture capital spectrum.

To achieve this aim, some investment activities will be ineligible for the

concession. Although there will be further consultation with the industry to

ensure appropriate targeting at venture capital activities, it is proposed that

activities such as property development, investment in passive entities, retailing

and some elements of financial services will be excluded from eligibility.

The new arrangements will apply from 1 July 2002 and while investors should

find the rules simple to apply, they will contain appropriate integrity measures.

It is the Government’s intention to consult extensively with the industry

on implementation and compliance issues.

To ensure that the new arrangements are understood in relevant offshore markets,

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 the industry.

MELBOURNE

15 October 2001