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Venture capital sector set to kick along innovation and growth.



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Venture capital sector set to kick along innovation and growth

The Australian venture capital market is set to grow in size, maturity and expertise, following the announcement of initiatives to remove regulatory and taxation impediments to the flow of venture capital from offshore investment vehicles.

The new changes will apply flow-through treatment to offshore venture capital vehicles in designated countries that are tax exempt in their country of origin. These changes remove the existing regulatory impediments to the investment vehicles that carry the vast majority of US and global venture capital.

Such flow-through treatment is currently provided for pension funds from designated countries. However, in the US in particular, capital is pooled through a range of vehicles, including funds of funds, foundations and endowments, which are not eligible for the current exemption.

This further enhancement will mean that vehicles such as limited partnership structures will be taxed as they are now in their country of origin, but not in Australia.

The exemption will result in a further inflow of capital to a venture capital sector that has already more than quadrupled in size under the Coalition; the Australian Venture Capital Association estimates an in-flow of $1 billion over five years. It will also introduce greater competition in Australia’s venture capital sector, import expertise in highly technical areas of investment such as information and communications technologies, and is likely to increase the amount of capital that is available at the higher risk, early stages of commercialisation.

The Coalition has increased the access to capital by:

Halving the rate of capital gains tax, increasing the incentive to invest in growth; ● Rollover relief for takeovers from capital gains tax obligations; ● Extending capital gains tax exemption to overseas pension funds from designated countries; ● The $220m Innovation Investment Fund program, kickstarting the venture capital sector with leveraged

funding for private sector investment in innovative companies; ●

Establishing the BITS Incubator program, where incubators can provide seed funding and support up to the value of $450,000 to ICT start-ups; ●

Establishing a $78m pre-seed fund to help commercialise public sector research. ●

The Coalition Government understands the crucial importance of capital in the national innovation system. Capital fuels growth of innovative businesses, creating jobs and wealth.

Media Contact: Annabelle Herd 03 9650 0233 or 0408 293 458

2 November 2001