Investment Funds 2025

AUSTRALIA Law and Practice Contributed by: Michael Lawson, Nicole Brown, Lizzie White and Tamaryn Leach, MinterEllison

2.6 Tax Regime Taxation of a Trust

For a VCLP, the key Australian tax implications include: • “flow-through” treatment – taxable income derived by the VCLP “flows through” the partnership to the investors and will be taxed in the hands of the investors; and • CGT exemption – a full CGT exemption is available for eligible venture capital partners (ie, tax-exempt foreign residents or foreign venture capital funds) on gains derived from the disposal of EVCIs made by the VCLP (subject to satisfying certain requirements). For an ESVCLP, the key Australian tax implica - tions include: • “flow-through” treatment – taxable income derived by the VCLP “flows through” the partnership to the investors and will be taxed in the hands of the investors; • tax offset – a non-refundable carried-forward tax offset is available to investors for the lesser of 10% of their eligible contributions or share of investments in the ESVCLP (subject to satisfying certain requirements); • revenue gain or profit exemption – any rev - enue gain or profit arising from the disposal of an EVCI by an ESVCLP will be excluded from the taxable income of an investor of the ESVCLP, which only applies if the revenue gain that arises would have been subject to the CGT exemption if the asset disposed of was a CGT asset (note that the exemp - tion is capped where the relevant investment exceeds AUD250 million); and • income exemption – an investor’s share of income (eg, dividend) derived from EVCIs made by an ESVCLP will be excluded from the partner’s taxable income calculation if the partner is a limited partner of an Australian- resident general partner.

Typically, the income and gains of a trust are subject to flow-through tax treatment (ie, tax - able income of a trust is taxed at the hands of the investors) and, therefore, investors are taxed directly on their pro rata share of the income of the trust and gains arising from the disposal of any investment of the trust. In order to qualify as a “managed investment trust”, broadly, the trust: • must be managed by an AFSL holder; • must be widely held; • must not be closely held; and • cannot control a trading business. Where the trust qualifies and elects to be a “managed investment trust”: • fund payment distributions made by the man - aged investment trust to foreign investors may be subject to the concessional managed investment withholding tax of 15%; and • investors’ share of the gains arising from disposals of investments by the funds should be taxed under the capital gains tax provi - sions rather than be treated as a revenue gain (where the trust has made certain election) – as a result, a capital gains tax (CGT) dis - count may be available for eligible Australian resident investors. Further detail is provided in 3.6 Tax Regime . Taxation of a VCLP or an ESVCLP A VCLP or an ESVCLP provides fund manag - ers and investors with support to help stimulate venture capital investments through tax benefits.

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