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Thursday, 14 November 2002
Page: 9021


Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (9:44 AM) —I move:

That this bill be now read a second time.

This bill, together with the Taxation Laws Amendment (Venture Capital) Bill 2002, will establish an internationally competitive framework for venture capital investments. This framework is designed to encourage new foreign investment into the Australian venture capital market, particularly through increased support of tax exempt foreign investors. The measures will fulfil the government's election commitment to provide Australia with a world's best practice investment vehicle for venture capital.

The Venture Capital Bill 2002 establishes a registration and reporting process for venture capital limited partnerships, Australian venture capital funds of funds and eligible venture capital investors. The registration and reporting rules represent an important integrity aspect of the measures and ensure that compliance with the tax concession may be monitored. In addition, these integrity measures facilitate an assessment of the impact of the tax concession.

The PDF Registration Board (the board) which is established under the Pooled Development Funds Act 1992, will administer the registration of these limited partnerships and investors. The board will provide the public face and a first point of contact for the measure and will be supported by AusIndustry and the Australian Taxation Office.

The board will also have power to deregister venture capital limited partnerships and Australian venture capital funds of funds for failing to comply with eligibility requirements and not meeting registration or reporting requirements. However, a partnership's registration will not be revoked until the general partner has been informed of the concern and allowed a set period to remedy the matter. The registration of a tax exempt non-resident investor may be revoked if it fails to lodge an annual return, but the board will allow the investor time to make submissions about the failure to lodge the return.

To qualify for registration, venture capital limited partnerships will need to be limited partnerships established under Australian law or the law in force in their respective jurisdictions. They will also need to remain in existence for between five years and 15 years and have committed capital of at least $20 million.

Australian venture capital funds of funds will need to be limited partnerships established under Australian law and to remain in existence for between five and 20 years. Their general partner must be resident in Australia.

Venture capital limited partnerships, Australian venture capital funds of funds and tax exempt non-resident investors will be able to invest in a wide range of eligible companies although some limitations will be placed on the nature of the investment and the types of companies in which they can invest. The investee companies must be valued at no more than $250 million, immediately before the investment is made. Also, for the first 12 months of the investment the investee company must be located in Australia unless the board determines a shorter period.

There are a number of activities that these companies cannot engage in as their principal activity. These include property development and land ownership, finance (to the extent that it is banking, providing capital to others, leasing, factoring or securitisation) insurance, construction or acquisition of certain infrastructure facilities or investments that directly derive income in the nature of interest, rents, dividends, royalties or lease payments. In addition, eligible investments may only be made in unlisted companies or in listed companies that will be delisted within 12 months of the investment being made.

Venture capital limited partnerships and Australian venture capital funds of funds will be able to invest through shares or non-transferable options including warrants. Australian venture capital funds of funds will only be able to invest in venture capital limited partnerships and in companies in which a venture capital limited partnership, in which it is a partner, holds one or more investments.

Both venture capital limited partnerships and Australian venture capital funds of funds may also make loans (including convertible notes) to eligible companies in which they hold at least 10 per cent of the equity and certain debt interests. If they do not hold this minimum interest, any loans will have to be repaid within six months.

I commend the bill to the House and I have already presented the explanatory memorandum jointly with the previous bill, the Taxation Laws Amendment (Venture Capital) Bill 2002.

Debate (on motion by Mr Albanese) adjourned.