In brief
The Budget contained measures expanding venture capital tax incentives by increasing asset and fund size caps for new and existing funds and new investments from 1 July 2027.
Key takeaways
Tax incentives available in respect of Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) will be expanded so that larger businesses can qualify for investment under these programs, which should enable funds to deploy larger pools of capital. Fund managers and investors may wish to review pipeline opportunities and fund documentation ahead of 1 July 2027 to take advantage of the higher thresholds.
The detail
The changes will apply from 1 July 2027 and will affect both the VCLP and ESVCLP regimes. The VCLP and ESVCLP programs are designed to increase venture capital investment in Australia by providing beneficial tax treatment to eligible local and foreign investors.
In broad terms, the measures lift key asset and fund size caps, allowing more businesses to qualify for investment under these programs and enabling funds to deploy larger pools of capital. The Government’s stated objective is to support start-ups and high growth businesses by unlocking greater access to capital as well as the networks and industry expertise typically associated with venture investors.
Key changes from 1 July 2027 include:
- The VCLP cap on the investee’s asset size at the time of investment will increase to AUD 480 million (from AUD 250 million)
- The ESVCLP cap on the investee’s asset size at the time of investment will increase to AUD 80 million (from AUD 50 million)
- The ESVCLP threshold for full tax exemption on eligible investment returns will increase to AUD 420 million in investee assets (from AUD 250 million)
- The maximum fund size for ESVCLPs will rise to AUD 270 million (from AUD 200 million).
Importantly, the increased caps will apply to new and existing funds and to new investments made from 1 July 2027, including follow on investments into portfolio businesses already held. Existing ESVCLPs must continue to comply with their approved investment plans, or seek approval for a replacement plan where changes are required to accommodate the expanded parameters.
Fund managers and investors may wish to review pipeline opportunities and fund documentation ahead of 1 July 2027 to take advantage of the higher thresholds, particularly for follow-on funding rounds in scaling businesses. Growth companies approaching the former caps may also find the expanded settings broaden the pool of eligible venture capital. ESVCLPs should confirm ongoing compliance with their approved investment plans and consider whether amendments or a replacement plan will be required.
A copy of the Federal Budget papers can be found here.
With thanks to Miles Hurst, Serena Chow, Jeremy Hyman and Sky Friend for their assistance in preparing this Budget Bite.