Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 118 - Exemptions  

Subdivision 118-F - Venture capital investment  

Operative provisions

SECTION 118-407   Exemption for certain venture capital investments through early stage venture capital limited partnerships  

General

118-407(1)    
All of your share in a *capital gain or a *capital loss from a *CGT event is disregarded if:

(a) you are a partner in a *limited partnership; and

(b) the CGT event relates to an investment that the partnership made that:

(i) is an *eligible venture capital investment; and

(ii) meets all of the *additional investment requirements for ESVCLPs for the investment; and

(c) when the partnership made the investment, the partnership was an *early stage venture capital limited partnership that was *unconditionally registered; and

(d) at the time of the CGT event, the partnership:

(i) owned the investment; and

(ii) had owned the investment for at least 12 months; and

(iii) was an early stage venture capital limited partnership that was unconditionally registered; and

(iv) in the case of a capital gain - met all of the *registration requirements of an ESVCLP that are not *investment registration requirements.

Note 1:

The registration requirements of an ESVCLP are set out in section 9-3 of the Venture Capital Act 2002 . It is important to understand that this is a separate requirement from registration under Part 2 of that Act (which effectively determines whether an entity is an ESVCLP).

It is technically possible to be registered under Part 2 of that Act without meeting the registration requirements of an ESVCLP, but you might still not be entitled to exemption under this section.

Note 2:

This section does not apply if you get a partial exemption in relation to a CGT event under section 118-408 .

Residency requirements for general partners

118-407(2)    
However, if you are a *general partner in the partnership, subsection (1) does not apply to you unless you are:

(a) an Australian resident; or

(b) a resident of a foreign country in respect of which a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936 ) is in force that is an agreement of a kind referred to in subparagraph (b)(i), (ia), (ii), (iii), (iv) or (v) of that definition.

118-407(3)    
For the purposes of this section, the place of residence of a *general partner in a *limited partnership:

(a) that is a company or limited partnership; and

(b) that is not an Australian resident;

is the place in which the general partner has its central management and control.

Meaning of early stage venture capital limited partnership

118-407(4)    
A *limited partnership is an early stage venture capital limited partnership at a particular time if, at that time, the partnership's registration as an early stage venture capital limited partnership under Part 2 of the Venture Capital Act 2002 is, or is taken to have been, in force.

Note 1:

For when the registration is, or is taken to have been, in force, see section 13-10 of the Venture Capital Act 2002 .

Note 2:

In this Act and the Venture Capital Act 2002 , the term " early stage venture capital limited partnership " is usually abbreviated to " ESVCLP " .

118-407(5)    
(Repealed by No 54 of 2016)

Effect of converting convertible notes etc.

118-407(6)    
A partnership that acquired a *share in a company by converting a *convertible note, or a convertible preference share, issued by the company is treated, for the purposes of subparagraph (1)(d)(ii), as having owned the share from the time when it last acquired the convertible note or convertible preference share.

118-407(7)    
A partnership that acquired a unit in a unit trust by converting a *convertible note issued by the trustee of the unit trust is treated, for the purposes of subparagraph (1)(d)(ii), as having owned the unit from the time when it last acquired the convertible note.

118-407(8)    
Subsection (6) or (7) applies whether or not the acquisition of the *convertible note, or convertible preference share, was an *eligible venture capital investment.

118-407(9)    
A partnership that converts a *convertible note into a share or a unit is treated, for the purposes of subparagraph (1)(d)(ii), as continuing to own the convertible note until the partnership no longer owns the share or unit.