Key Takeaways
- • Wealth managers are increasingly directing clients into Early Stage Venture Capital Limited Partnerships (ESVCLPs), which offer no income tax, zero capital gains tax and a 10% upfront tax credit, according to OneVentures founding partner Michelle Deaker.
- • The federal budget raised ESVCLP thresholds for the first time in two decades: the maximum asset size for full tax exemption rose to $420m from $250m, the asset size cap at investment rose to $80m from $50m, and the maximum fund size rose to $270m from $200m.
- • The shift follows harsher capital gains tax treatment for growth assets under the budget, which replaces the 50% CGT discount with an indexation model, and the removal of negative gearing benefits for property investors buying existing housing stock.
- • Investor interest is also being driven by caution in private credit, where Metrics Credit Partners has stopped investor redemptions from some funds (gating).
- • OneVentures has urged the government to make the innovative start-up eligibility tests for the 50% CGT discount more flexible, after the proposal set conditions such as company age under 10 years, or up to 15 years in some cases.
Summary
Wealth managers are steering more client capital toward early-stage venture capital structures following changes in the federal budget, according to a report in Stockhead, which republished coverage from The Australian. OneVentures founding partner Michelle Deaker said her firm was receiving increased inquiries and engagement from private wealth firms seeking tax-effective investments for their clients. The Early Stage Venture Capital Limited Partnership (ESVCLP) structure provides no income tax, zero capital gains tax and a 10% upfront tax credit.
The budget raised several ESVCLP thresholds that had been unchanged for about two decades. The asset size limit for a business to maintain full tax exemption was lifted to $420m from $250m. The cap on a company's asset size at the time of investment increased to $80m from $50m. The maximum fund size for managers investing in early-stage companies rose to $270m from $200m. Deaker said the adjustments account for CPI over the period and allow investment in somewhat larger companies, which she argued moves the risk profile favorably for investors.
The changes come amid broader tax reform. The budget replaced the 50% capital gains tax discount with an indexation model, which founders said could leave them paying the government up to half of any gain on the sale of their companies, and removed negative gearing benefits for property investors buying existing housing stock. After backlash, the government proposed restoring the 50% CGT discount for innovative start-ups meeting conditions including being younger than 10 years, or in some cases up to 15 years, and being genuinely focused on developing new or significantly improved innovations for commercialisation. Deaker said the tests were too narrow and urged more flexibility, and that carve-outs for venture capital investment needed to be expanded.
The article also notes that investors are exploring alternatives after concerns in private credit, where Metrics Credit Partners has halted redemptions from some funds. OneVentures launched the first ESVCLP fund in 2010, investing $8m in Vaxxas, a biotech developing needle-free vaccine patches, which went on to raise about $200m and now operates a manufacturing facility in Queensland. The firm also invested in digital healthcare company Eucalyptus, which was sold for $1.6bn in February.
The budget raised several ESVCLP thresholds that had been unchanged for about two decades. The asset size limit for a business to maintain full tax exemption was lifted to $420m from $250m. The cap on a company's asset size at the time of investment increased to $80m from $50m. The maximum fund size for managers investing in early-stage companies rose to $270m from $200m. Deaker said the adjustments account for CPI over the period and allow investment in somewhat larger companies, which she argued moves the risk profile favorably for investors.
The changes come amid broader tax reform. The budget replaced the 50% capital gains tax discount with an indexation model, which founders said could leave them paying the government up to half of any gain on the sale of their companies, and removed negative gearing benefits for property investors buying existing housing stock. After backlash, the government proposed restoring the 50% CGT discount for innovative start-ups meeting conditions including being younger than 10 years, or in some cases up to 15 years, and being genuinely focused on developing new or significantly improved innovations for commercialisation. Deaker said the tests were too narrow and urged more flexibility, and that carve-outs for venture capital investment needed to be expanded.
The article also notes that investors are exploring alternatives after concerns in private credit, where Metrics Credit Partners has halted redemptions from some funds. OneVentures launched the first ESVCLP fund in 2010, investing $8m in Vaxxas, a biotech developing needle-free vaccine patches, which went on to raise about $200m and now operates a manufacturing facility in Queensland. The firm also invested in digital healthcare company Eucalyptus, which was sold for $1.6bn in February.
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