The VCLP concessions as a tool of capital market design

Since the early stages of the Hawke government, Australias taxation system has beenmodified with a view to attracting additional capital into the domestic venture capitalmarket. In December 2002, the Howard government enacted the Taxation LawsAmendment (Venture Capital) Act 2002 (Cth) and the Venture Capital Act 2002 (Cth).This legislative package created a prospective concession primarily aimed atqualifying limited partnerships who participate in the Australian venture capitalmarket. Subject to a rather stringent qualification criteria, such partnerships are treatedas fiscally transparent for the purposes of Australian taxation law. In addition, thegains made upon the disposal of portfolio investments by these partnerships may notbe subject to Australian capital gains tax (&quotCGT&quot) or otherwise assessable as ordinaryincome. The central concept of these measures is the venture capital limitedpartnership (&quotVCLP&quot), and other fund of fund organisational forms which are foundedon the limited partnership. For this reason, the provisions of the Taxation LawsAmendment (Venture Capital) Act 2002 (Cth) and the Venture Capital Act 2002 (Cth)are collectively identified as the &quotVCLP Concessions&quot.This thesis has been prepared as a rigorous assessment of the VCLP Concessions. Itdraws upon an analysis of the nature and structure of venture capital investing todetermine whether the particular features of the VCLP Concessions appropriatelycater for the needs of prospective foreign investors. The efficacy and appropriatenessof the VCLP Concessions from a policy perspective is also examined.Recommendations are provided which, if enacted, would address regions of structuralinconsistency and improve the functioning of this concessional regime