Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 (54 of 2016)

Schedule 2   Venture capital investment

Part 5   Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Income Tax Assessment Act 1997

28   After subsection 118-425(14)

Insert:

Temporary exception to the requirements for predominant activity

(14A) A company is taken to meet the requirements of subsection (3) even if it fails to satisfy at least 2 of the requirements in that subsection if:

(a) the company's sole purpose is making one or more investments that are *eligible venture capital investments, or would be eligible venture capital investments apart from paragraph (1)(d); and

(b) during the 6 month period starting immediately before the first investment made by a *VCLP, *ESVCLP, *AFOF or *eligible venture capital investor, the company has used all of the amounts invested in it:

(i) to make investments of a kind referred to in paragraph (a); or

(ii) to engage in activities that are ancillary or incidental to making those investments.

However, this subsection applies to the company only for that 6 month period.

Activities disregarded in applying the predominant activity test

(14B) If *Innovation Australia determines under section 25-15 of the Venture Capital Act 2002 that:

(a) the activities of the controlled entity of a company are complementary to one or more of the activities, of the company or its other controlled entities, that are not ineligible activities mentioned in subsection (13) of this section; and

(b) the activities that, taken together, constitute the principal activities of the company and all of its controlled entities are not ineligible activities mentioned in subsection (13) of this section; and

(c) in all the circumstances, it is appropriate that, for a period specified in the determination, the activities of the controlled entity are disregarded when applying subsection (3) of this section to the company;

in applying subsection (3) of this section to the company, disregard, for the period specified in the determination, the activities of the controlled entity.

Other entity can be taken to meet requirements relating to location in Australia

(14C) In applying subsection (4) to a company in relation to its investment in another entity, the other entity is taken, for the purposes of subparagraph (4)(b)(ii), to meet the requirements of subsection (2) if *Innovation Australia determines under section 25-15 of the Venture Capital Act 2002 that:

(a) the activities of the other entity are complementary to one or more of the activities of the company or its other controlled entities; and

(b) the company meets the requirements of subsection (2) of this section at the time the investment is made, or will meet those requirements at the time the investment is proposed to be made.