Venture capital limited partnerships

We administer the Venture Capital Limited Partnership (VCLP) program jointly with The Department of Industry, Innovation and Science (DIIS).

A VCLP has:

• a general partner who manages the fund (fund manager), and
• limited partners who invest money.

Limited partners have limited liability and are not involved with its day-to-day management. Income and capital gains earned by eligible foreign limited partners from the disposal of investments may be exempt from tax.

Eligibility

To be eligible for the tax incentives, a venture capital fund must remain registered as a VCLP. The Innovation Investment Committee (the Committee), a sub-committee managed by DIIS, registers VCLPs under the Venture Capital Act 2002.

Fund managers can apply to Innovation and Science Australia (ISA) at any time to register a VCLP if a fund meets registration requirements.

Registration requirements

Key registration requirements are summarised below.

• The partnership is a limited partnership, established in Australia or in a country with which Australia has a double taxation agreement.
• All general partners are residents of Australia, or residents of a country with which Australia has a double taxation agreement.
• The partnership must have at least $10 million committed capital.

Committed capital

Committed capital is the sum of the amounts the partner may, under the partnership agreement, become obliged to contribute to the partnership.

A partnership that does not have at least $10 million committed capital may be granted conditional registration.

Other registration requirements on investments that a VCLP is allowed to make are known as investment registration requirements. Under these requirements, a VCLP must:

• only hold eligible venture capital investments (EVCIs)
• only carry on activities related to being a VCLP
• have all of its debt interests as permitted loans under the Venture Capital Act 2002.

Conditional registration

A partnership that does not meet the $10 million committed capital condition for unconditional registration may be granted conditional registration. A partnership that has been conditionally registered must present sufficient evidence to satisfy the Committee that it is likely to raise at least $10 million and gain full registration within 24 months. Conditional registration expires after 24 months.

To gain full registration, an additional application that shows the partnership meets all requirements for registration must be submitted to the Committee.

The application for unconditional registration should be lodged no later than 60 days before the end of the conditional registration.

Maintaining registration

Reporting requirements

A VCLP must also meet the reporting requirements including:

• quarterly returns within one month of the end of each quarter
• an annual return within three months of the end of the financial year.

Registration can be revoked if the VCLP fails to meet any of these requirements.

Eligible venture capital investments

To maintain registration, VCLPs must only make investments that are EVCIs.

Many conditions must be met for an investment to be treated as an EVCI. The investment must:

• be in a company or unit trust (investee)
• not be, or will cease to be, a listed investment
• not represent more than 30% of the VCLP's committed capital
• be at-risk regarding the value and earnings from the investment
• be in an investee that has    
  • a total value of assets (before the investment is made) of no more than $250 million
  • more than 50% of its employees and more than 50% of its assets located in Australia.
  • a predominant activity not in property development or land ownership, construction or acquisition of infrastructure, finance, insurance or making passive-type investments. However, its predominant activity can be in developing technology for use in finance, insurance or making passive-type investments.
   

The total value of assets is the amount shown in the investee's latest audited accounts. Market value is instead used if the investee is not required to appoint an auditor and has not appointed one.

An auditor isn't required if either:

• the total value of assets is less than $12.5 million
• the investee is a small proprietary company or an equivalent unit trust.

The total value of assets includes assets of entities connected with the investee, if the assets are not already reflected in the value of the investee’s assets.

Activity of developing technology

An investee's activity to develop technology broadly covers its activities to create, understand and apply technological innovation for use in finance, insurance or making passive-type investments. These activities can be developing physical devices or intangibles, such as software. They do not include activities of merely using the technology in finance, insurance or making passive-type investments.

Developing technology is a process. Over time, it is likely to shift from developing the underlying technology to commercialising, building market share and establishing the use of the developed technology as industry practice. Whether technology is still being developed or is already developed is a question of fact.

An investee can also engage in activities ancillary or incidental to the activity of developing technology for use in finance, insurance or making passive-type investments.

Using or applying developed technology while trying to commercialise it may be ancillary or incidental to developing technology where its use or application is integral to developing technology. In these cases, other factors such as the frequency, nature and size of use must be considered in determining whether the activity is ancillary or incidental to developing that technology.

Substantially novel application of technology

An investee can also engage in an activity on a substantially novel application of technology related to finance, insurance or making passive-type investments. The investee needs to obtain a finding from Innovation and Science Australia (ISA) that its activity is one that applies technology in a substantially novel way.

More information

For eligibility and registration enquiries:

• contact AusIndustry by phone 13 28 46 or email ventureCapital@industry.gov.au
• visit business.gov.au – Grants and programsExternal Link

For an ISA finding on substantially novel application of technology:

• visit business.gov.au - Venture CapitalExternal Link
• email ventureCapital@industry.gov.au

Eligibility and registration requirements for the Venture Capital Limited Partnership (VCLP) program.