The federal government has launched a review of the venture capital tax breaks introduced as part of the National Innovation and Science Agenda in 2015.
The review, to be undertaken by Treasury and Industry, Innovation and Science Australia, was announced as part of the federal government’s new Digital Economy Strategy, but is also a legislative requirement under the scheme.
The reforms announced five years ago aimed to entice more VC investment in early-stage companies by enhancing the concessional treatment of early-stage venture capital limited partnership (ESVCLPs).
They also offered tax benefits to both local fund managers and eligible foreign investors involved with Venture Capital Limited Partnerships (VCLPs).
At the time, the government said the tax reforms would make the schemes “more internationally competitive and attract greater levels of venture capital investment”.
Five year years after the tax breaks were announced, now is the “appropriate time to evaluate the impact of these tax concessions”, Treasury said.
The review will look at the effectiveness of the reforms to ESVCLPs, VCLPs and the Australian Fund of Funds program. It will consider how the concessions operate practically and if they are achieving their states objectives.
As part of the review, other recommendations made to government in other relevant reviews which the government has not yet responded to will also be considered.
Treasury will also be investigating what data is available about the effectiveness of these concessions. The review was launched on Wednesday, with Treasury to now prepare a consultation paper for stakeholders to offer their views.
The impact assessment report will be tabled in parliament towards the end of 2021. But it won’t be coming with any new policy or reform recommendations, instead focusing on the effectiveness of the current scheme.
Australian Investment Council chief executive Yasser El-Ansary welcomed the review when it was first announced in May.
“The Council welcomes the consultation on the VCLPs and ESVCLPs regimes. Providing clarity and certainty on the framework for VCLPs and ESVCLPs and making them competitive with other jurisdictions will help attract investment to Australian businesses across a range of new and emerging sectors of the economy,” Mr El-Ansary said.