On 7 July 2021, the Government has announced the Terms of Reference for its review into the tax treatment of venture capital, to find out if the current tax concessions support genuine early stage Australian start-ups. The review will be undertaken by Treasury and Industry Innovation and Science Australia (IISA). The review, announced in the lead up to the 2021-22 Budget, will cover the Early Stage Venture Capital Limited Partnership (ESVCLP), the Venture Capital Limited Partnership (VCLP), and the Australian Fund of Funds (AFOFs) programs. A report is expected towards the end of 2021.

See below for further details.

[Tax Month – July 2021]

 


 

To ensure current venture capital tax concessions support genuine early stage Australian start-ups, the Government announced a review into the tax treatment of venture capital, with the Terms of Reference for the review released on 7 July 2021.

Recent trends demonstrate a vibrant Australian venture capital industry with a record $1.3 billion raised in 2020, compared to $200 million in 2013, according to the Australian Investment Council. This capital provides start-ups and small innovative businesses with funds for projects that can lead to technology improvements and boost productivity growth.

As part of the 2016 National Innovation and Science Agenda, the Government implemented reforms to enhance the concessional treatment of the Early Stage Venture Capital Limited Partnership (ESVCLP) program to target this concession towards ventures at the very early stages of the lifecycle of a developing start-up. Five years on, now is the appropriate time to evaluate the impact of these tax concessions.

Treasury and IISA will undertake stakeholder consultation over the coming months. It is expected that the final report will be delivered to the Treasurer towards the end of 2021.

Venture Capital Tax Concessions Review

Australia’s venture capital tax concessions are to be reviewed by the Treasury and Industry Innovation and Science Australia for the following purposes:

  • To consider how the concessions operate in practice and whether they are achieving their intended objectives
  • To satisfy the legislative requirement outlined in Section 118-455 of Income Tax Assessment Act 1997
  • To consider the recommendations of other relevant reviews, to which the Government has not yet responded, that examine the venture capital tax concessions

The scope provided in the Terms of Reference includes:

  • assessment of impacts arising from the venture capital concessions, ie how the concessions operate in practice and whether they’re achieving their intended objectives;
  • consideration of recommendations of other relevant reviews, to which the Government has not yet responded, that examine the venture capital tax concessions;
  • identifying what data is available (before deciding nature of impact assessment);
  • preparation of a succinct consultation paper providing means for stakeholders to offer views and provide evidence on operation of concessions; and
  • Treasury to prepare the impact assessment report for tabling in Parliament.

[Treasury website: Consultation page, Terms of Reference; LTN 128, 7/7/21]

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