New CIV regime
On Budget night the Government announced a new tax and regulatory framework for two new types of CIVs. CIVs permit investors to pool their funds and have them managed by a professional funds manager. For income years starting on or after 1 July 2017 a corporate CIV will be introduced and this will be followed by a limited partnership CIV for income years starting on or after 1 July 2018.
The use of a company structure as a collective investment vehicle has been proposed as it is well suited for offering retail investment products. The Government considers that this will be particularly important in encouraging investment from the Asian region and to take advantage of the Asian region funds passport. The limited partnership collective investment vehicle, on the other hand is commonly used in foreign jurisdictions to facilitate wholesale investments by large investors such as pension funds.
The new CIVs will be required to meet similar eligibility criteria as managed investment trusts such as being widely held and engaging in primarily passive investment. While little detail has been provided about the tax rules relating to those vehicles, it is proposed that, in general, investors will be taxed as if they had invested directly in the underlying assets.
Expanding tax incentives for early stage investors
The Government has amended the Mid-Year Economic and Fiscal Outlook (MYEFO) 2015-16 National Innovation and Science Agenda – tax incentives for angel investors measure to:
- reduce the holding period from 3 years to 12 months for investors to access the 10 year capital gains tax exemption;
- include in the definition of eligible start-ups a time limit on incorporation criteria for determining if the start-up is an innovation company;
- require that the investor and innovation company are non-affiliates; and
- limit the investment amount for non-sophisticated investors to $50,000 or less per income year in order to receive a tax offset.
The purpose of the amendments according to the Government is to ensure that they promote investment in early stage innovation companies in a more targeted fashion.
New arrangements for venture capital limited partnerships (VCLP)
The Government has amended the MYEFO 2015-16 measure National Innovation and Science Agenda – new arrangement for venture capital investment to:
- Add a transitional arrangement that allows conditionally registered funds that become unconditionally registered after 7 December 2015 to access the tax offset if the criteria are met;
- Relax the requirement for very small entities to provide an auditor’s statement of assets;
- Extend the increase in fund size from $100 million to $200 million for new early stage venture capital limited partnerships (ESVCLPs) to also apply to existing ESVCLPs; and
- Ensure that the venture capital tax concessions are available for fin tech, banking and insurance related activities.