Australian government commits $360m to innovation fund, clarifies VC structures

The measures form part of the government's Industry and Innovation Statement, a wider initiative that will see A$1 billion committed to spur job creation.

The Industry Innovation Fund was set up in 1997 as a co-investment scheme whereby the government licenses fund managers and provides capital for investment which must be matched at an agreed ratio by private sector LP commitments. In the previous round of funding, which took place in 2006, A$200 million was made available to create up to 10 new funds.

Applications for the first tranche of the new round will open later this year. The size of the tranche is unknown but the Australian Private Equity and Venture Capital Association (AVCAL) said the capital "will be a great boost to venture investing in Australia, especially taking into account the equal amount of private capital that will be invested alongside."

The government has also pledged to recycle any money returned by the sponsored funds back into the program.

In terms of ES/VCLP, the highlight is a clarification on the tax treatment of investment gains. Any gains arising from the disposal of an eligible venture capital investment - held for at least 12 months - will be treated as a capital gain rather than business income, which means eligible domestic LPs won't be liable for local tax.

The definition of an eligible investor has also been clarified to bring it in line with the definition of foreign LPs - individual investors should hold less than a 10% interest in the fund corpus, be tax exempt, or be a widely held superannuation fund, or be an Australian managing investment trust.

In addition, the minimum investment capital requirement for ESVCLPs has been reduced from A$10 million to A$5 million; the rule that foreign VC fund-of-funds may not exceed 30% of a VCLP's corpus will be removed, provided a fund-of-funds is widely held; and Innovation Australia will have the discretion to allow ESVCLPs to exceed the 20% foreign investment cap.

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• Topics
• Australasia
• Regulation
• Australia
• regulation
• AVCAL