Digital economy plan to review tax breaks for venture capital

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The government’s $ 1.2 billion digital economy plan could make changes to tax breaks for venture capital firms in Australia, with key programs to be overhauled.

The plans are included in incentives for investment in digital technologies, which also include tax compensations for the video game industry and depreciation for intangible assets.

They will include assessments of tax incentive schemes for venture capital firms, which are designed to attract foreign investment and encourage investment in young start-ups.

Australia’s venture capital industry is supported by two key tax incentives: the Venture Capital Limited Partnership (VCLP) and Early Stage Limited Partnership (ESVCLP) programs.

The VCLP offers benefits to local fund managers and eligible foreign investors through a partnership agreement, with both parties enjoying tax benefits.

The idea is to help fund managers attract capital, so that they can raise funds of over $ 10 million to invest in Australian companies.

The ESVCLP is designed to stimulate investment in start-ups in the pre-seed, seed, start-up and early expansion stages.

The dollar value of investments in Australia through these two programs has steadily increased.

Only three VCLP funds were registered in 2002. In 2016, there were 81, and in fiscal year 2019-2020, there were 89, bringing $ 1.3 billion into the ecosystem.

The ESVCLP were created in 2007. In 2019-2020, 106 partnerships were registered, with $ 63.8 million to invest.

New digital measurements

There isn’t much information yet on what exactly the assessment will involve. However, the government’s backgrounder says the review will work to ensure that the arrangements are fit for purpose “and support genuine start-ups.”

In a statement, Yesser El-Ansary, director general of the Australian Investment Council, welcomed the measure, saying that modernizing regimes is something the council has been advocating for some time.

Right now, for example, there is a threshold of $ 250 million for ESVCLP investments, he notes, calling it “obsolete.”

“In our view, changes need to be made in order to keep pace with the rapid growth of some venture-backed companies and to ensure that Australia’s tax parameters in the innovation sector remain globally competitive. Said El-Ansary.

The measure could serve as recognition of the venture capital industry in the post-COVID-19 economic recovery.


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