Government launches review into the tax treatment of venture capital investments

The government has announced a review into the tax treatment of venture capital investments, with the Terms of Reference for the review released earlier this week.

The review, set to be undertaken by Treasury and Industry Innovation and Science Australia (IISA), will cover the Early Stage Venture Capital Limited Partnership (ESVCLP), the Venture Capital Limited Partnership (VCLP), and the Australian Fund of Funds (AFOFs) programs.

According to the Australian Investment Council, recent trends demonstrate a strong Australian venture capital industry with a record $1.3 billion raised in 2020, compared with $200 million in 2013. 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 Coalition 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," said Assistant Treasurer Michael Sukkar. 

"Five years on, now is the appropriate time to evaluate the impact of these tax concessions," Mr Sukkar noted. 

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.