Australian Venture Capital Fund of Funds
At a glance
Provides a registered Australian Venture Capital Fund of Funds (AFOF) with a flow through tax incentive for investment in registered Early Stage Venture Capital Limited Partnerships (ESVCLPs) and Venture Capital Limited Partnerships (VCLPs), and in their eligible direct investments.
Who can apply:
At a minimum, you must:
- be a limited partnership or an incorporated limited partnership, established in Australia
- ensure each general partner is an Australian resident
- have a partnership agreement that ensures the partnership will exist for five to 20 years.
Other eligibility requirements may apply.
The Australian Venture Capital Fund of Funds (AFOF) program provides a structure that encourages investment in a portfolio of registered Early Stage Venture Capital Limited Partnerships (ESVCLPs) and Venture Capital Limited Partnerships (VCLPs).
An AFOF can also invest in eligible direct investments of those funds. To be eligible, the direct investment must be in a company or unit trust in which the AFOF-partnered ESVCLP or VCLP already owns an eligible venture capital investment.
An AFOF provides diversification and flexibility for the fund and its investors and may help larger venture capital funds reduce and manage risk.
Fund managers can apply to Innovation and Science Australia to register a partnership as an AFOF. The Department of Industry, Innovation and Science and the Australian Taxation Office (ATO) jointly administer the program on behalf of the Australian Government, including monitoring compliance.
How it works
An AFOF must be a new partnership rather than a restructured existing partnership. Applicants must apply to Innovation and Science Australia for registration under the VCA. Innovation and Science Australia has delegated its decision-making powers for AFOFs to authorised delegates.
A delegate will register a partnership as an AFOF if it meets certain eligibility criteria.
If registered, an AFOF can invest in an ESVCLP, a VCLP, or an eligible venture capital investment in a company or unit trust in which its partner ESVCLP or VCLP already holds an investment. Investments must be made in accordance with the VCA and ITAA 1997 [Subdivision 118-F]. The only debt interests an AFOF may hold are permitted loans.
After an AFOF is approved, the general partner must self-assess activity to ensure the partnership complies with the legislation. The general partner must also submit quarterly and annual activity returns.
Registration may be revoked if a partnership contravenes the legislation.
The key tax benefits of an AFOF are:
- The AFOF's flow-through tax treatment means the fund itself is not taxed and the income flows through to investors.
- Eligible foreign investors do not pay capital gains tax on their share of returns the AFOF makes from eligible venture capital investments.
- The general partner's (often also the fund manager's) interests are taken to be held on the capital account, rather than the revenue account.
The extent of the tax benefits depend on a number of factors. AFOF participants should seek professional tax advice.
For tax concession enquiries, contact the Australian Taxation Office on 13 28 66.
You can apply to register as an AFOF if you:
- are a limited partnership or incorporated limited partnership established in Australia*
- ensure each general partner is an Australian resident
- have a partnership agreement that:
- requires the partnership to remain in existence for five to 20 years
- requires partners to contribute their capital as and when required under the agreement
- prohibits the addition of new partners except as provided for in the agreement
- prohibits increases in committed capital except as provided for in the agreement
- confers on the general partner the right to require partners to contribute their committed capital to the partnership
- includes a plan outlining the partnership's intended investment activities.
* The program is for new partnerships only. It is not possible to establish an AFOF by restructuring an existing partnership.
There is no minimum capital requirement for full registration as an AFOF. However, the general partner must advise that the fund has sufficient capital to begin its investment program.
All information should be read in conjunction with the relevant legislation: the VCA, ITAA 1997and the Income Tax Assessment Act 1936.
How to apply
If you would like to apply for registration as an AFOF, you must submit a complete application to Innovation and Science Australia. The application must include:
- an AFOF application form
- a certificate of registration as a limited partnership or an incorporated limited partnership issued by the relevant state government or territory authority
- a certificate of registration if the general partner is a venture capital management partnership
- an investment plan included with the signed partnership deed
- a signed limited partnership deed (including the investment plan) that satisfies the requirements set out under eligibility criteria
- the partnership's information memorandum and any public offer documents
- signed individual subscription deeds
- CVs and time commitments of the key people active in the partnership.
To request a copy of the application form, email firstname.lastname@example.org.
For assistance with the application form contact us.
When an application will be decided
Delegates have 60 days from receiving a complete registration application to decide whether to grant or refuse the application (which they can extend by a further 60 days). If the application is incomplete it will not be considered. The 60-day timeframe does not start until all information and documents are received.
Applicants will be advised of the decision.
Generally, the delegate will grant registration if your partnership meets the eligibility criteria.