House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

General outline and financial impact

Tax incentives for early stage investors

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to encourage new investment in Australian early stage innovation companies with high growth potential by providing investors, who invest in such companies, with a tax offset and a capital gains tax exemption for their investments.

These amendments form part of the tax incentive for early stage investors measure.

Date of effect: These amendments apply in relation to shares issued on or after the later of 1 July 2016 or Royal Assent.

Proposal announced: These amendments were announced by the Treasurer on 7 December 2015 as part of the Government's National Innovation and Science Agenda.

Financial impact: The tax incentive for early stage investors has the following revenue implications:

Human rights implications: This Schedule raises human rights issue. See Statement of Compatibility with Human Rights - paragraphs 1.134 to 1.143.

Compliance cost impact: The tax incentive for early stage investors has an estimated compliance cost impact of $1.25 million per year. This cost has been fully offset within the portfolio.

Venture capital investment

Schedule 2 to this Bill amends the early stage venture capital limited partnership (ESVCLP) and venture capital limited partnership (VCLP) regimes within the Venture Capital Act 2002 and Income Tax Assessment Act 1997 to improve access to venture capital investment and make the regimes more attractive to investors. These changes are intended to encourage and support innovation, risk-taking, and an entrepreneurial culture in Australia.

The amendments provide an additional tax incentive for limited partners in new ESVCLPs, relax restrictions on ESVCLP investments and fund size and clarify the legal framework for venture capital investment in Australia.

Date of effect: The amendments made by Schedule 2 will broadly apply on and after 1 July 2016.

However, the ESVCLP tax offset will be available for any qualifying contributions made to ESVCLPs that become unconditionally registered on or after 7 December 2015.

Proposal announced: The measure forms part of the National Innovation and Science Agenda, announced in the Government's Innovation Statement on 7 December 2015.

Financial impact: The measure is estimated to have the following revenue impact over the forward estimates period:

- Nil

* Unquantifiable

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -paragraphs 2.167 to 2.172.

Compliance cost impact: This measure imposes some minor transitional and ongoing compliance costs on venture capital investors and their advisers.