Getting Startups Capital – Reforming ESVCLPs

Labor will help supercharge the formation of startups in Australia through changes to the existing Early Stage Venture Capital Limited Partnerships.

Early Stage Venture Capital Limited Partnerships (ESVCLP)

Venture capital funds of between $10 million and $100 million invested in Australian businesses are entitled to preferential tax treatment through the ESVCLP program.

ESVCLP entitles a fund to flow-through tax treatment and its investors receive a complete tax exemption on their share of the fund's income (both revenue and capital).

Labor will lower the minimum level of investment required for entry into the ESVCLP program from $10 million to $5 million to facilitate increased funding from angel investors.

Labor will also make sensible changes to streamline and update the requirements of the ESVCLP program, including implementing measures that were proposed by Labor in 2013, in response to a Board of Taxation Review, but abandoned by the Abbott-Turnbull Government.

Currently the ESVCLP rules restrict any one entity from contributing more than 30 per cent of a fund.  Only financial institutions are exempt from this rule.

To encourage greater participation from investors in other sectors, rules should enable the regulator to provide exemptions for certain widely held companies who demonstrate an active, sizeable commitment to Australian innovation.

Accordingly, a Labor Government will work with relevant regulators and stakeholders to ease ESVCLP contribution restrictions for widely held companies and sophisticated investors.

Further information is available here.