Commonwealth Consolidated Acts Commonwealth Consolidated Acts
Income Tax Assessment Act 1997
1 Section 11 - 15 (before the table item headed "life assurance")
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foreign investment |
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gain or profit from realisation of venture capital equity | 51 - 55 |
2 At the end of Division 26
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26 - 70 Loss from disposal of venture capital equity
You cannot deduct under this Act a loss made from the disposal or other realisation of * venture capital equity in a * resident investment vehicle if:
(a) it is made by a * venture capital entity or a * limited partnership referred to in subsection 118 - 515(2); and
(b) if that disposal or other realisation were a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under Subdivision 118 - G.
3 At the end of Division 51
Add:
51 - 55 Gain or profit from disposal of venture capital equity
Any gain or profit made from the disposal or other realisation of * venture capital equity in a * resident investment vehicle is exempt from income tax if:
(a) it is made by a * venture capital entity or a * limited partnership referred to in subsection 118 - 515(2); and
(b) if that disposal or other realisation were a * disposal of a * CGT asset, any * capital gain or * capital loss would be disregarded under Subdivision 118 - G.
4 At the end of Division 118
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Subdivision 118 - G -- Venture capital
118 - 500 What this Subdivision is about
A non - resident tax exempt pension fund that invests in venture capital equity in an Australian company or fixed trust (a resident investment vehicle) can disregard a capital gain or capital loss it makes from a CGT event that happens to that equity if:
(a) the entity is registered under the Pooled Development Funds Act 1992 ; and
(b) the entity owned the equity for at least 12 months.
Table of sections
118 - 505 Exemption for certain foreign venture capital
118 - 510 Meaning of resident investment vehicle
118 - 515 Meaning of venture capital entity
118 - 520 Meaning of foreign superannuation fund
118 - 525 Meaning of venture capital equity
[This is the end of the Guide.]
118 - 505 Exemption for certain foreign venture capital
(1) A * capital gain or * capital loss is disregarded if it is made from a * CGT event happening in relation to a * CGT asset that is * venture capital equity where the asset:
(a) was * acquired by a * venture capital entity; and
(b) at the time of the CGT event:
(i) was owned by that entity; and
(ii) had been owned by that entity for at least 12 months.
(2) The * venture capital entity must be registered under Part 7A of the Pooled Development Funds Act 1992 at the time of the * CGT event.
118 - 510 Meaning of resident investment vehicle
(1) A resident investment vehicle is a company that is an Australian resident, or a trust that is a * resident trust for CGT purposes, if:
(a) the sum of:
(i) the total value of the assets of the company or trust, and
(ii) the total value of the assets of any company or trust * connected with the first company or trust; and
(iii) the amount of the investment proposed to be made in venture capital equity in the company or trust by the relevant * venture capital entity;
is not more than $50,000,000 just before the time (the acquisition time ) when the relevant venture capital entity acquires venture capital equity in the company or trust; and
(b) the primary activity of the company or trust is not, at any time, property development or land ownership.
(2) However, a trust is not a resident investment vehicle unless entities have * fixed entitlements to all of the income and capital of the trust.
(3) The total value of the assets of a company or trust is the total value of its assets (both current and non - current) as shown in:
(a) the last audited accounts prepared for the company or trust for the purposes of the Corporations Law that relates to a period ending less than 18 months before the acquisition time; or
(b) if there are no such audited accounts--a statement audited by the company's or trust's auditor showing that value as at a time no longer than 12 months before the acquisition time.
118 - 515 Meaning of venture capital entity
(1) An entity (except a partner in a partnership) is a venture capital entity if:
(a) it is not an Australian resident; and
(b) it is a * foreign superannuation fund; and
(c) it is not a * prescribed dual resident; and
(d) it is a resident of:
(i) Canada; or
(ii) France; or
(iii) Germany; or
(iv) Japan; or
(v) the United Kingdom; or
(vi) the United States of America; or
(vii) some other foreign country prescribed by the regulations; and
(e) its income is exempt, or effectively exempt, from taxation in its country of residence.
(2) A partner in a partnership is a venture capital entity if:
(a) all of the partners in it are entities that are * venture capital entities under subsection ( 1); or
(b) the partnership is a * limited partnership and:
(i) all of the partners in it (except its general partner or managing partner) are venture capital entities under subsection ( 1); and
(ii) its general partner or managing partner has interests in less than 10% of the total value of the assets of the partnership.
118 - 520 Meaning of foreign superannuation fund
(1) A fund is a foreign superannuation fund at a time if:
(a) at that time, it is:
(i) an indefinitely continuing fund; and
(ii) a provident, benefit, superannuation or retirement fund; and
(b) it was established in a foreign country; and
(c) it was established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents or residents of a Territory; and
(d) at that time, its central management and control is carried on outside Australia by entities none of whom is an Australian resident or a resident of a Territory.
(2) However, a fund is not a foreign superannuation fund if:
(a) an amount paid to the fund or set aside for the fund has been or can be deducted under this Act; or
(b) a * tax offset has been allowed or is allowable for such an amount.
118 - 525 Meaning of venture capital equity
(1) A * CGT asset is venture capital equity for a * venture capital entity if it is a * share in a company or an interest in a trust where:
(a) the company or trust is a * resident investment vehicle; and
(b) the share or interest was issued or allotted to the entity by the company or trust; and
(c) the entity was at risk in owning the share or interest in that it had no * arrangement (either before or after the share or interest was issued or allotted) as to:
(i) the maintenance of the value of the share or interest; or
(ii) any earnings or other return that might be made from owning it; or
(iii) protection from commercial loss because of owning it.
Example: A company borrows money to purchase some shares. The terms of the loan include a term that, if the value of the shares falls below the amount of the loan, the company can repay the loan by transferring the shares to the lender.
The company's ownership of the shares is not at risk, because there is no possibility that it can lose money under the transaction.
(2) However, * shares or interests in the * resident investment vehicle issued or allotted to a * venture capital entity are not venture capital equity for the entity if:
(a) one or more of these events happens:
(i) a share or interest in the resident investment vehicle that was * acquired by some other entity before that issue or allotment is cancelled or redeemed; or
(ii) there is a return of some of the capital of the resident investment vehicle that was acquired before that issue or allotment; or
(iii) value is shifted out of a share or interest in that vehicle that was acquired before that issue or allotment; and
(b) it is reasonable to conclude that the happening of the event referred to in paragraph ( a) is connected to that issue or allotment, or to some * arrangement between the entities concerned.
Example: The capital of an Australian company is 100,000 shares, with a market value of $1 per share. The shares have full voting and dividend rights.
The Australian company issues another 100,000 shares to a foreign company. The new shares are issued at one cent each, but have very limited voting and dividend rights.
The Australian company then changes the rights attaching to its shares so that the new shares have full voting and dividend rights, and the original shares have none.
Value has been shifted out of the original shares, effectively converting "old equity" to "new equity".
(3) In deciding whether it is reasonable to reach the conclusion referred to in paragraph ( 2)(b), these matters are relevant:
(a) whether the amount of the decrease in the * net value of the * resident investment vehicle because of the happening of the event referred to in paragraph ( 2)(a) is the same as, or is calculated by reference to, the value of the issue or allotment of * shares or interests to the * venture capital entity; and
(b) the time lapse between the happening of that event and that issue or allotment.
Pooled Development Funds Act 1992
5 Subsection 4(1) (at the end of the definition of reviewable decision )
Add:
; or (i) under section 52A to refuse to register an entity under Part 7A; or
(j) under section 52D to revoke such a registration.
6 Subsection 4(1)
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"resident investment vehicle" has the same meaning as in the Income Tax Assessment Act 1997 .
7 Subsection 4(1)
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"venture capital entity" has the same meaning as in the Income Tax Assessment Act 1997 .
8 Subsection 4(1)
Insert:
"venture capital equity" has the same meaning as in the Income Tax Assessment Act 1997 .
9 At the end of section 6
Add:
(2) The Board also has the function of registering venture capital entities under Part 7A.
10 After subsection 43(1)
Insert:
(1A) The Board may, for the purposes of this Act, require a resident investment vehicle, a venture capital entity or a present or former officer or investment manager of a resident investment vehicle or a venture capital entity:
(a) to provide the Board with information relating to the resident investment vehicle or the venture capital entity; or
(b) to produce to the Board documents that so relate.
11 Subsection 52(1)
After "registration application", insert "or an application for registration under Part 7A".
12 Subsection 52(2)
After "section 41", insert "or 52C".
13 After Part 7
Insert:
Part 7A -- Investments by venture capital entities
52A Registration of venture capital entities
(1) A venture capital entity may apply to the Board for registration under this Part.
(2) An application must be given to the Board within 30 days after the venture capital entity makes its first investment in venture capital equity.
(3) An application must be in writing, and must include the following information:
(a) the entity's current residency status;
(b) details of the entity's tax exempt status in its country of residence;
(c) details of the facts that qualify the entity as a foreign superannuation fund;
(d) the address of the entity's registered office;
(e) the name and address of the first resident investment vehicle in which it has invested or proposes to invest and the industry in which it operates;
(f) the amount of the investment and the date on which it was or is to be made;
(g) the total value of the assets of the resident investment vehicle (worked out as mentioned in subsection 118 - 510(3) of the Income Tax Assessment Act 1997 ) before the investment;
(h) details of other investments that do not constitute venture capital equity the entity holds in the resident investment vehicle;
(i) if the entity is the general partner or managing partner of a limited partnership referred to in subparagraph 118 - 515(2)(b)(ii) of the Income Tax Assessment Act 1997 --details of the partner's interests in the assets of the partnership.
(4) The Board must decide to register the entity under this Part if the Board is satisfied that the information has been provided.
(5) If the Board registers an applicant under this Part, the Board must notify the applicant within 45 days of the application being made.
52B Period within which application must be decided
(1) Subject to this section, the Board must decide an application for registration under this Part within 45 days after receiving it.
(2) If the Board thinks that it will take longer to decide the application, the Board may extend, by up to 45 days, the period for deciding it.
(3) An extension must be made by written notice given to the applicant within 45 days after the Board receives the application.
(4) If the Board makes an extension, the Board must decide the application within the extended period.
52C Annual return by venture capital entities
(1) A registered venture capital entity must, within 3 months after the end of each financial year (30 June), give the Board a written return that includes the following information:
(a) the entity's current residency status;
(b) details of the entity's tax exempt status in its country of residence;
(c) details of the facts that qualify it as a foreign superannuation fund;
(d) details of:
(i) investments the entity made during that year in resident investment vehicles; and
(ii) investments in resident investment vehicles that the entity disposed of during that year; and
(iii) investments the entity holds at the end of that year in resident investment vehicles;
(e) the industries in which those vehicles operate;
(f) if the entity is the general partner or managing partner of a limited partnership referred to in subparagraph 118 - 515(2)(b)(ii) of the Income Tax Assessment Act 1997 --details of the partner's interests in the assets of the partnership.
(2) Information about a matter that a return must include because of paragraph ( 1)(a) or (b) is information about that matter as at the time when the return is given to the Board.
52D Revocation at discretion of Board
(1) Subject to this section, the Board may revoke an entity's registration under this Part if the Board is satisfied that the entity has failed to comply with section 52C.
(2) As soon as practicable after revoking an entity's registration under this Part, the Board must give the entity a notice that advises of the revocation and sets out the Board's reasons for deciding to revoke.
(3) The Board must not revoke a registration unless the Board:
(a) by notice in writing given to the entity, allows the entity at least 14 days after the notice is given in which to make written submissions to the Board about the matters specified in the notice that, in the opinion of the Board, may constitute grounds for the revocation; and
(b) considers any such submissions.
14 Subsection 72(1)
Repeal the subsection, substitute:
(1) The Board may, by resolution, delegate to a member all or any of the Board's functions and powers under this Act, other than:
(a) for PDFs--the Board's powers to make and revoke registration declarations; and
(b) the Board's powers to register entities or revoke registration under Part 7A.
15 Subsection 73(1)
Repeal the subsection, substitute:
(1) The Board may, by resolution, delegate to a committee of 2 or more of its members all or any of the Board's functions and powers under this Act, other than:
(a) for PDFs--the Board's powers to make and revoke registration declarations; and
(b) the Board's powers to register entities or revoke registration under Part 7A.
16 Subsection 74(2)
Repeal the subsection, substitute:
(2) Subsection ( 1) does not apply to:
(a) for PDFs--making or revoking a registration declaration; or
(b) registering an entity or revoking registration under Part 7A.
17 After subsection 75(2)
Insert:
(2A) The Board must also include in the report:
(a) a list of the entities registered under Part 7A as at the end of the financial year; and
(b) a list of the entities that became registered under that Part during the financial year; and
(c) a list of the entities whose registration under that Part was revoked during the financial year.
18 Application of amendments
The amendments made by this Schedule apply to the issue or allotment of venture capital equity in a resident investment vehicle on or after the day on which this Act receives the Royal Assent.