TAX LAWS AMENDMENT (TAX INCENTIVES FOR INNOVATION) BILL 2016

2013-2014-2015-2016

The Parliament of the

Commonwealth of Australia

HOUSE OF REPRESENTATIVES

Presented and read a first time

Tax Laws Amendment (Tax Incentives

for Innovation) Bill 2016

No. , 2016

(Treasury)

A Bill for an Act to amend the law relating to

taxation, and for related purposes

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Contents

Short title ........................................................................................... 1

Commencement ................................................................................. 1

Schedules ........................................................................................... 3

Schedule 1--Tax incentives for early stage investors

Part 1--Main amendments

Income Tax Assessment Act 1997

Part 2--Other amendments

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Part 3--Application of amendments

Schedule 2--Venture capital investment

Part 1--Tax offset for ESVCLP investments

Income Tax Assessment Act 1997

Part 2--ESVCLP fund size cap

Venture Capital Act 2002

Part 3--Removing the ESVCLP divestiture registration

requirement

Income Tax Assessment Act 1997

Venture Capital Act 2002

Part 4--CGT exemption for fixed and unit trust beneficiaries

of partners in ESVCLPs

Income Tax Assessment Act 1997

Part 5--Requirements for entities in which VCLPs, ESVCLPs

and AFOFs invest

Income Tax Assessment Act 1997

Venture Capital Act 2002

Part 6--Foreign venture capital funds of funds

Income Tax Assessment Act 1997

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Venture Capital Act 2002

Part 7--Rulings that activities are not ineligible activities

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Venture Capital Act 2002

Part 8--Auditing requirements

Income Tax Assessment Act 1997

Part 9--Managed investment trusts

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Part 10--Conditional registration

Venture Capital Act 2002

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

A Bill for an Act to amend the law relating to

taxation, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Tax Laws Amendment (Tax Incentives

for Innovation) Act 2016.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Commencement information

Column 1

Column 2

Column 3

Provisions

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day this Act receives the Royal Assent.

2. Schedule 1

The later of:

(a) the day this Act receives the Royal

Assent; and

(b) 1 July 2016.

3. Schedule 2,

Parts 1 to 8

At the same time as the provisions covered

by table item 2.

4. Schedule 2,

item 73

The later of:

(a) the same time as the provisions covered

by table item 2; and

(b) immediately after the commencement of

Schedule 4 to the Tax Laws Amendment

(New Tax System for Managed

Investment Trusts) Act 2016.

However, this item does not commence at all

if the event mentioned in paragraph (b) does

not occur.

5. Schedule 2,

item 74

At the same time as the provisions covered

by table item 2.

6. Schedule 2,

item 75

At the same time as the provisions covered

by table item 2.

However, this item does not commence at all

if the provisions covered by table item 2 do

not commence before the commencement of

Schedule 4 to the Tax Laws Amendment

(New Tax System for Managed Investment

Trusts) Act 2016.

7. Schedule 2,

item 76

The later of:

(a) the day this Act receives the Royal

Assent; and

(b) 1 July 2016.

8. Schedule 2,

At the same time as the provisions covered

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Commencement information

Column 1

Column 2

Column 3

Provisions

Commencement

Date/Details

Part 10

by table item 2.

Note:

This table relates only to the provisions of this Act as originally

enacted. It will not be amended to deal with any later amendments of

this Act.

(2) Any information in column 3 of the table is not part of this Act.

Information may be inserted in this column, or information in it

may be edited, in any published version of this Act.

3 Schedules

Legislation that is specified in a Schedule to this Act is amended or

repealed as set out in the applicable items in the Schedule

concerned, and any other item in a Schedule to this Act has effect

according to its terms.

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Schedule 1--Tax incentives for early stage

investors

Part 1--Main amendments

Income Tax Assessment Act 1997

1 After Division 355

Insert:

Division 360--Early stage investors in innovation

companies

Table of Subdivisions

360-A Tax incentives for early stage investors in innovation

companies

Subdivision 360-A--Tax incentives for early stage investors in

innovation companies

Guide to Subdivision 360-A

360-5 What this Subdivision is about

You may be entitled to a tax offset if you are, or a trust or

partnership of which you are a member is, issued with certain kinds

of equity interests in a small Australian company with high-growth

potential that is engaging in innovative activities.

A modified CGT treatment may also apply to those equity

interests.

Table of sections

Operative provisions

360-10

Object of this Subdivision

360-15

Entitlement to the tax offset

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

360-20

Limited entitlement for certain kinds of investors

360-25

Amount of the tax offset--general case

360-30

Amount of the tax offset--members of trusts or partnerships

360-35

Amount of the tax offset--trustees

360-40

Early stage innovation companies

360-45

100 point innovation test

360-50

Modified CGT treatment

360-55

Modified CGT treatment--partnerships

360-60

Modified CGT treatment--not affected by certain roll-overs

360-65

Separate modified CGT treatment for roll-overs about wholly-owned

companies or scrip for scrip roll-overs

Operative provisions

360-10 Object of this Subdivision

The object of this Subdivision is to encourage new investment in

small Australian innovation companies with high-growth potential

by providing qualifying investors with a tax offset and a modified

CGT treatment.

360-15 Entitlement to the tax offset

General case

(1) You are entitled to a

tax offset for an income year if:

(a) you are none of the following:

(i) a trust or a partnership;

(ii) a

widely held company or a

100% subsidiary of a

widely held company; and

(b) at a particular time during the income year, a company issues

you with

equity interests that are

shares in the company;

and

companies) applies to the company immediately after that

time; and

(d) neither you nor the company is an

affiliate of each other at

that time; and

(e) the issue of those shares is not an

acquisition of

ESS

interests under an

employee share scheme; and

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(f) immediately after that time, you do not hold more than 30%

of the equity interests in the company or in an entity

connected with the company.

Members of trusts or partnerships

(2) A

member of a trust or partnership at the end of an income year is

entitled to a

tax offset for the income year if the trust or

partnership would be entitled to a tax offset, under subsection (1),

for the income year if the trust or partnership were an individual.

Trustees

(3) A trustee of a trust is entitled to a

tax offset for an income year if:

(a) the trustee would be entitled to a tax offset, under

subsection (1), for the income year if the trustee were an

individual; and

(b) the trustee is liable to be assessed or has been assessed, and is

liable to pay

tax, on a share of, or all or a part of, the trust's

net income under section 98, 99 or 99A of the Income Tax

Assessment Act 1936 for the income year.

360-20 Limited entitlement for certain kinds of investors

(1) You do not satisfy paragraph 360-15(1)(b) if:

(a) for each offer resulting in

equity interests that are

shares in

the company being issued to you during the income year,

none of subsections 708(8), (10) or (11) of the Corporations

Act 2001 removed the need for a disclosure document; and

(b) a total of more than $50,000 was paid for the issue to you of

the shares resulting from all of those offers.

(2) For the purposes of this section, assume that Chapter 6D of the

Corporations Act 2001 applies to those offers.

360-25 Amount of the tax offset--general case

(1) If subsection 360-15(1) applies, the amount of the

tax offset is

20% of the total amount paid for the

shares to which

paragraph 360-15(1)(b) applies.

Tax incentives for early stage investors Schedule 1

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Note:

If subsection 360-15(1) applies for shares issued to you at several

times during the income year, then this subsection uses the total

amount paid for all of those shares.

(2) However, reduce this amount to the extent necessary to ensure that

the sum of the following does not exceed $200,000:

(a) the sum of the

tax offsets under this Subdivision for the

income year for which you and your

affiliates (if any) are

entitled;

(b) the sum of the tax offsets under this Subdivision that you and

your affiliates (if any) carry forward to the income year.

360-30 Amount of the tax offset--members of trusts or partnerships

(1) If subsection 360-15(2) applies, the amount of the

member's

tax

offset for the income year is as follows:

Determined share of notional tax offset

Notional tax offset amount



where:

determined share of notional tax offset is the percentage

determined under subsection (2) for the

member.

notional tax offset amount is what would, under section 360-25,

have been the amount of the trust's or partnership's

tax offset (the

notional tax offset) if the trust or partnership had been an

individual.

(2) The trustee or partnership may determine the percentage of the

notional tax offset that is the

member's share of the notional tax

offset.

(3) If the

member would be entitled to a fixed proportion of any

capital gain from a

disposal were the disposal to happen in

relation to the trust or partnership at the end of the income year,

then:

(a) the percentage determined under subsection (2) must be

equivalent to that fixed proportion; and

(b) a determination of any other percentage has no effect.

(4) The trustee or partnership must give the

member written notice of

the determination. The notice:

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(a) must enable the member to work out the amount of the

member's

tax offset by including enough information to

enable the member to work out the member's share of the

notional tax offset; and

(b) must be given to the member within 3 months after the end of

the income year, or within such further time as the

Commissioner allows.

(5) The sum of all the percentages determined under subsection (2) in

relation to the

members of the trust or partnership must not exceed

100%.

360-35 Amount of the tax offset--trustees

If subsection 360-15(3) applies, the amount of the

tax offset is the

difference between:

(a) what would, under section 360-25, have been the amount of

the tax offset to which the trustee would have been entitled if

the trustee had been an individual; and

(b) if

members of the trust are entitled to tax offsets under

subsection 360-15(2) arising from the same

shares to which

the trustee's entitlement arises under subsection 360-15(3)--

the sum of the amounts, under section 360-30, of those tax

offsets.

360-40 Early stage innovation companies

(1) This subsection applies to a company at a particular time (the test

time) in an income year (the current year) if:

(a) the company was:

(i) incorporated in Australia within the last 3 income years

(the latest being the current year); or

(ii) incorporated in Australia within the last 6 income years

(the latest being the current year), and across the last 3

of those income years it and its

100% subsidiaries (if

any) incurred total expenses of $1 million or less; or

(iii) registered in the

Australian Business Register within

the last 3 income years (the latest being the current

year); and

Tax incentives for early stage investors Schedule 1

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(b) the company and its 100% subsidiaries (if any) incurred total

expenses of $1 million or less in the income year before the

current year; and

assessable income of $200,000 or less in the income year

before the current year; and

(d) at the test time, none of the company's

equity interests are

listed for quotation in the official list of any stock exchange

in Australia or a foreign country; and

(e) at the test time, the company has at least 100 points under

section 360-45, or:

(i) the company is genuinely focussed on developing for

commercialisation one or more new, or significantly

improved, products, processes, services or marketing or

organisational methods; and

(ii) the business relating to those products, processes,

services or methods has a high growth potential; and

(iii) the company can demonstrate that it has the potential to

be able to successfully scale that business; and

(iv) the company can demonstrate that it has the potential to

be able to address a broader than local market, including

global markets, through that business; and

(v) the company can demonstrate that it has the potential to

be able to have competitive advantages for that

business.

(2) For the purposes of paragraph (1)(c), disregard any Accelerating

Commercialisation Grant under the program administered by the

Commonwealth known as the Entrepreneurs' Programme.

(3) Subparagraphs (1)(e)(i) to (v) cannot be satisfied for:

(a) a product, process, service or method; or

(b) an improvement to a product, process, service or method;

that is of a kind prescribed by regulations made for the purposes of

this subsection.

(4) Subsection (1) does not apply to a company if, before the test time,

the company engaged in an activity of a kind prescribed by

regulations made for the purposes of this subsection.

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

360-45 100 point innovation test

(1) At a particular time (the test time) in an income year (the current

year), a company has the points mentioned in an item of the

following table if that item applies to the company at that time.

Innovation points potentially available at that time in the current year

Column 1

Column 2

Item

Points

Innovation criteria

At least 50% of the company's total expenses for the previous

income year is expenditure that the company can notionally

deduct for that income year under section 355-205 (about

R&D expenditure).

The company has received an Accelerating Commercialisation

Grant under the program administered by the Commonwealth

known as the Entrepreneurs' Programme.

At least 15%, but less than 50%, of the company's total

expenses for the previous income year is expenditure that the

company can notionally deduct for that income year under

section 355-205 (about R&D expenditure).

(a) the company has completed or is undertaking an

accelerator program that:

(i) provides time-limited support for entrepreneurs with

start-up businesses; and

(ii) is provided to entrepreneurs that are selected in an

open, independent and competitive manner; and

(b) the entity providing that program has been providing that,

or other accelerator programs for entrepreneurs, for at least

6 months; and

of entrepreneurs.

(a) a total of at least $50,000 has been paid for

equity

interests that are

shares in the company; and

(b) the company issued those shares to one or more entities

that:

(i) were not

associates of the company immediately

before the issue of those shares; and

(ii) did not

acquire those shares primarily to assist

another entity become entitled to a

tax offset (or a

modified CGT treatment) under this Subdivision;

and

Tax incentives for early stage investors Schedule 1

Main amendments Part 1

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Innovation points potentially available at that time in the current year

Column 1

Column 2

Item

Points

Innovation criteria

test time.

(a) the company has rights (including equitable rights) under a

Commonwealth law as:

(i) the patentee, or a licensee, of a standard patent; or

(ii) the owner, or a licensee, of a plant breeder's right;

granted in Australia within the last 5 years (ending at the

test time); or

(b) the company has equivalent rights under a

foreign law.

Unless item 6 applies to the company at the test time:

(a) the company has rights (including equitable rights) under a

Commonwealth law as:

(i) the patentee, or a licensee, of an innovation patent

granted and certified in Australia; or

(ii) the owner, or a licensee, of a registered design

registered in Australia;

within the last 5 years (ending at the test time); or

(b) the company has equivalent rights under a

foreign law.

The company has a written agreement with:

(a) an institution or body listed in Schedule 1 to the Higher

Education Funding Act 1988 (about institutions or bodies

eligible for special research assistance); or

(b) an entity registered under section 29A of the Industry

Research and Development Act 1986 (about research

service providers);

to co-develop and commercialise a new, or significantly

improved, product, process, service or marketing or

organisational method.

(2) At the test time, the company also has the points prescribed by

regulations made for the purposes of this subsection if the

prescribed innovation criteria for those points apply to the

company at that time.

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

360-50 Modified CGT treatment

(1) This section applies if the issuing of a

share to an entity gives rise

to an entitlement to a

tax offset under this Subdivision.

Note:

This section applies to any share that gives rise to the entitlement,

regardless of whether subsection 360-25(2) reduces the amount of the

tax offset.

(2) The entity is taken to hold the

share on capital account.

(3) The entity must disregard any

capital loss it makes from any

CGT event happening in relation to the

share if:

(a) the entity has continuously held the share since its issue; and

(b) the CGT event happens before the tenth anniversary of the

issue of the share.

(4) The entity may disregard any

capital gain it makes from any

CGT event happening in relation to the

share if:

(a) the entity has continuously held the share since its issue; and

(b) the CGT event happens on or after the first anniversary, but

before the tenth anniversary, of the issue of the share.

(5) If the entity has continuously held the

share since its issue, the

first element of its

cost base and

reduced cost base becomes, on

the tenth anniversary of its issue, its

market value on that

anniversary.

360-55 Modified CGT treatment--partnerships

(1) The purpose of this section is to ensure that the modifications made

by section 360-50 apply to each partner in a partnership in a case

where the partnership is the entity that is issued with the

mentioned in subsection 360-50(1).

(2) In such a case, subsections 360-50(2) to (4) apply as if:

(a) the first reference in those subsections to the entity were a

reference to each partner in the partnership; and

(b) the first reference in those subsections to the

share were a

reference to the partner's interest in the share.

Note:

The references to the entity and the share in the paragraphs of

subsections 360-50(3) and (4) continue to apply unchanged.

Tax incentives for early stage investors Schedule 1

Main amendments Part 1

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(3) In such a case, treat subsection 360-50(5) as if it read as follows:

"If the partnership has continuously held the

share since its issue,

on the tenth anniversary of its issue:

(a) the

first element of the

cost base for a partner's interest in

the share becomes so much of the share's

market value on

that anniversary as is calculated by reference to the

partnership agreement, or partnership law if there is no

agreement; and

(b) the

first element of the

reduced cost base is worked out

similarly.".

360-60 Modified CGT treatment--not affected by certain roll-overs

(1) The purpose of this section is to ensure that the modifications made

by section 360-50 are not affected merely because of one or more

same-asset roll-overs or

replacement-asset roll-overs (other than

roll-overs under Division 122 or Subdivision 124-M).

(2) If, apart from those roll-overs, the entity (the original entity)

mentioned in subsection 360-50(1) would continue to hold the

share (the original share) mentioned in that subsection, then

subsections 360-50(2) to (5) apply as if:

(a) the following asset were the original share:

(i) if the last roll-over is a

same-asset roll-over--the asset

for the roll-over;

(ii) if the last roll-over is a

replacement-asset roll-over--

the replacement asset for the roll-over; and

Note:

The asset for subparagraph (i) will be the original share unless a

replacement-asset roll-over happened beforehand.

(b) that asset was issued when the original share was issued; and

acquired that asset for the roll-over had

continuously held that asset since the original share was

issued; and

(d) that entity were the original entity; and

(e) in a case where that entity is a partnership--paragraphs (a) to

(d) modify subsections 360-50(2) to (5) as they apply with

the modifications in section 360-55; and

(f) in a case where that entity is not a partnership but the entity

that owned the original asset for the roll-over is--

Schedule 1 Tax incentives for early stage investors

Part 1 Main amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

paragraphs (a) to (d) modify subsections 360-50(2) to (5) as

they apply without the modifications in section 360-55.

Note:

A roll-over under Division 122 (about wholly-owned companies) or

Subdivision 124-M (about scrip for scrip roll-overs) will stop the

modified CGT treatment under section 360-50 from continuing to

apply.

360-65 Separate modified CGT treatment for roll-overs about

wholly-owned companies or scrip for scrip roll-overs

(1) If:

(a) a

share mentioned in subsection 360-50(1) has been

continuously held by the entity mentioned in that subsection;

and

(b) then:

(i) the share, or interests in the share, are

disposed of in a

way that gives rise to a trigger event (see section 122-15

or 122-125) for a roll-over under Division 122; or

(ii) the share becomes the original interest (see

paragraph 124-780(1)(a)) for a roll-over under

Subdivision 124-M; and

before the tenth anniversary, of the issue of the share;

the

first element of the

cost base and

reduced cost base of the

share just before the roll-over is taken to be its

market value at

that time.

Note:

This subsection is a separate modified CGT treatment, and not a

continuation of the modifications made by section 360-50.

(2) If:

(a) an asset mentioned in paragraph 360-60(2)(a) for a roll-over

has been continuously held by the entity that

acquired that

asset for that roll-over; and

(b) then:

(i) that asset, or interests in that asset, are

disposed of in a

way that gives rise to a trigger event (see section 122-15

or 122-125) for a roll-over under Division 122; or

(ii) that asset becomes the original interest (see

paragraph 124-780(1)(a)) for a roll-over under

Subdivision 124-M; and

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

but before the tenth anniversary, of the issue of the original

share (see subsection 360-60(2) for the earlier roll-over;

the

first element of the

cost base and

reduced cost base of that

asset just before the later roll-over is taken to be its

market value

at that time.

Note:

This subsection is a separate modified CGT treatment, and not a

continuation of the modifications made by section 360-50.

Schedule 1 Tax incentives for early stage investors

Part 2 Other amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 2--Other amendments

Income Tax Assessment Act 1936

2 Subsection 177A(1)

Insert:

innovation tax offset means a tax offset allowed under:

(a) Subdivision 61-P (about early stage venture capital limited

partnerships) of the Income Tax Assessment Act 1997; or

(b) Subdivision 360-A (about early stage investors in innovation

companies) of that Act.

3 After paragraph 177C(1)(bb)

Insert:

(bbaa) an innovation tax offset being allowable to the taxpayer

where the whole or a part of that innovation tax offset would

not have been allowable, or might reasonably be expected not

to have been allowable, to the taxpayer if the scheme had not

been entered into or carried out; or

4 After paragraph 177C(1)(f)

Insert:

(faa) in a case where paragraph (bbaa) applies--the amount of the

whole of the innovation tax offset or of the part of the

innovation tax offset, as the case may be, referred to in that

paragraph; and

5 At the end of subsection 177C(2)

Add:

; or (e) an innovation tax offset being allowable to the taxpayer the

whole or a part of which would not have been, or might

reasonably be expected not to have been, allowable to the

taxpayer if the scheme had not been entered into or carried

out, where:

(i) the allowance of the innovation tax offset to the

taxpayer is attributable to the making of a declaration,

agreement, election, selection or choice, the giving of a

Tax incentives for early stage investors Schedule 1

Other amendments Part 2

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Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

notice or the exercise of an option by any person, being

a declaration, agreement, election, selection, choice,

notice or option expressly provided for by this Act; and

(ii) the scheme was not entered into or carried out by any

person for the purpose of creating any circumstance or

state of affairs the existence of which is necessary to

enable the declaration, agreement, election, selection,

choice, notice or option to be made, given or exercised,

as the case may be.

6 Subsection 177C(3)

Omit "or (d)(i)", substitute ", (d)(i) or (e)(i)".

7 After paragraph 177C(3)(ca)

Insert:

(caa) the allowance of an innovation tax offset to a taxpayer; or

8 After paragraph 177C(3)(g)

Insert:

(ga) the innovation tax offset would not have been allowable; or

9 After paragraph 177CB(1)(d)

Insert:

(daa) the whole or a part of an innovation tax offset not being

allowable to the taxpayer;

10 After paragraph 177F(1)(d)

Insert:

(da) in the case of a tax benefit that is referable to an innovation

tax offset, or a part of an innovation tax offset, being

allowable to the taxpayer--determine that the whole or a part

of the innovation tax offset, or the part of the innovation tax

offset, as the case may be, is not to be allowable to the

taxpayer; or

11 After paragraph 177F(3)(d)

Insert:

(da) if, in the opinion of the Commissioner:

Schedule 1 Tax incentives for early stage investors

Part 2 Other amendments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(i) an amount would have been allowed, or would be

allowable, to the relevant taxpayer as an innovation tax

offset if the scheme had not been entered into or carried

out, being an amount that was not allowed or would not,

apart from this subsection, be allowable, as the case

may be, as an innovation tax offset to the relevant

taxpayer; and

(ii) it is fair and reasonable that the amount, or a part of the

amount, should be allowable as an innovation tax offset

to the relevant taxpayer;

determine that that amount or that part, as the case may be,

should have been allowed or is allowable, as the case may be,

as an innovation tax offset to the relevant taxpayer; or

Income Tax Assessment Act 1997

12 Section 13-

1 (before table item headed "inter-corporate

dividends")

Insert:

innovation companies

certain shares issued to early stage investors ..................... Subdivision 360-A

13 Subsection 63-10(1) (before table item 35)

Insert:

Tax offset under Subdivision 360-A

(about early stage investors in

innovation companies)

You may carry it forward to a later

income year (under Division 65)

14 Section 112-97 (at the end of the table)

Add:

The issuing of a share

gives rise to an

entitlement to a tax

offset under

Subdivision 360-A

First element of cost

base and reduced cost

base

Sections 360-50,

360-55, 360-60 and

360-65

Tax incentives for early stage investors Schedule 1

Other amendments Part 2

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Taxation Administration Act 1953

15 Section 45-340 in Schedule 1 (method statement, step 1,

after paragraph (g))

Insert:

(ga)

Subdivision 360-A of the Income Tax Assessment

Act 1997 (the tax offset for early stage investors in

innovation companies); or

16 Section 45-375 in Schedule 1 (method statement, step 1,

after paragraph (f))

Insert:

(fa)

Subdivision 360-A of the Income Tax Assessment

Act 1997 (the tax offset for early stage investors in

innovation companies); or

17 Section 396-55 in Schedule 1 (at the end of the table)

Add:

a company

the issuing by the company of a

share that could give rise to an

entitlement to a

tax offset (or a

modified CGT treatment) under

Subdivision 360-A of the Income

Tax Assessment Act 1997

18 Paragraph 396-60(1)(a) in Schedule 1

Repeal the paragraph, substitute:

(a) must relate to:

(i) the identification, collection or recovery of a possible

tax-related liability; or

(ii) the identification of a possible reduction of a possible

tax-related liability;

of a party to the transaction (disregarding any exemption

under a

taxation law that may apply to those parties); and

Venture capital investment Schedule 2

Tax offset for ESVCLP investments Part 1

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Schedule 2--Venture capital investment

Part 1--Tax offset for ESVCLP investments

Income Tax Assessment Act 1997

1 Section 13-

1 (after table item headed "dividends")

Insert:

early stage venture capital limited partnerships

contributions to ESVCLPs......................................... Subdivision 61-P

2 At the end of Division 61

Add:

Subdivision 61-P--ESVCLP tax offset

Guide to Subdivision 61-P

61-750 What this Subdivision is about

A limited partner in an ESVCLP may be entitled to a tax offset for

investing in the ESVCLP.

Table of sections

Operative provisions

61-755

Object of this Subdivision

61-760

Who is entitled to the ESVCLP tax offset

61-765

Amount of the ESVCLP tax offset--general case

61-770

Amount of the ESVCLP tax offset--members of trusts or partnerships

61-775

Amount of the ESVCLP tax offset--trustees

Schedule 2 Venture capital investment

Part 1 Tax offset for ESVCLP investments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Operative provisions

61-755 Object of this Subdivision

The object of this Subdivision is to encourage new investment in

early stage venture capital by providing investors with a

tax offset

to reduce the effective cost of such investments.

61-760 Who is entitled to the ESVCLP tax offset

General case

(1) A

limited partner of an

ESVCLP is entitled to a

tax offset for an

income year if:

(a) the partner contributes to the ESVCLP during the income

year; and

(b) the partner is not a trust or partnership.

Members of trusts or partnerships

(2) A

member of a trust or partnership is entitled to a

tax offset for

an income year if the trust or partnership would be entitled to a tax

offset, under this section, for the income year if it were an

individual.

Trustees

(3) A trustee of a trust is entitled to a

tax offset for an income year if:

(a) the trust would be entitled to a tax offset, under this section,

for the income year if it were an individual; and

(b) in a case where the trustee has determined percentages under

subsection 61-770(2) in relation to the

members of the

trust--the sum of those percentages is not 100%; and

liable to pay

tax, on a share of, or all or a part of, the trust's

net income under section 98, 99 or 99A of the Income Tax

Assessment Act 1936 for that income year.

Venture capital investment Schedule 2

Tax offset for ESVCLP investments Part 1

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

61-765 Amount of the ESVCLP tax offset--general case

(1) If subsection 61-760(1) applies, the amount of the

tax offset for

the income year is 10% of the lesser of:

(a) the sum of the amounts the partner contributes to the

ESVCLP during the income year, reduced by any amounts

excluded under subsection (2); and

(b) the amount (the investment related amount) worked out

under subsection (3).

(2) The following amounts are excluded for the purposes of

paragraph (1)(a) in relation to the income year:

(a) any parts of a contribution the partner made to the

ESVCLP

that the ESVCLP is, or will become, obliged to repay to the

partner, whether or not:

(i) the obligation arises during the income year; or

(ii) the obligation arises only when the partner requests

repayment;

(b) any parts of a contribution the partner made to the ESVCLP

that, during the income year, are repaid to the partner within

12 months after the contribution was made;

to the extent that they comprise a commitment to provide

money or property in the future.

(3) Work out the investment related amount as follows:

Partner's share

Sum of eligible venture capital investments



where:

partner's share is the partner's share of the capital of the

ESVCLP at the end of the income year, expressed as a percentage

of the entire capital of the ESVCLP.

sum of eligible venture capital investments is the sum of:

(a) all the amounts of the

eligible venture capital investments

made by the

ESVCLP during the period starting at the start

of the income year and ending 2 months after the end of the

income year; and

(b) all the incidental costs, incurred during that period, of making

those investments; and

Schedule 2 Venture capital investment

Part 1 Tax offset for ESVCLP investments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

associated with those investments.

(4) For the purposes of paragraph (a) of the definition of sum of

eligible venture capital investments in subsection (3), disregard

the amounts of any

eligible venture capital investments that were

taken into account in working out the amount of a

tax offset under

this Subdivision for a preceding income year.

61-770 Amount of the ESVCLP tax offset--members of trusts or

partnerships

(1) If subsection 61-760(2) applies, the amount of the

member's

tax

offset for the income year is as follows:

Determined share of notional tax offset

Notional tax offset amount



where:

determined share of notional tax offset is the percentage

determined under subsection (2) for the

member.

notional tax offset amount is what would, under section 61-765,

have been the amount of the trust's or partnership's

tax offset (the

notional tax offset) if the trust or partnership had been an

individual.

(2) The trustee or partnership may determine the percentage of the

notional tax offset that is the

member's share of the notional tax

offset.

(3) If, under the terms and conditions under which the trust or

partnership operates, the

member would be entitled to a fixed

proportion of any

capital gain from a

disposal, were the disposal

to happen in relation to trust or partnership, of investments made as

a result of contributions that gave rise to the notional tax offset:

(a) the percentage determined under subsection (2) must be

equivalent to that fixed proportion at the end of the income

year to which the notional tax offset relates; and

(b) a determination of any other percentage has no effect.

(4) The trustee or partnership must give the

member written notice of

the determination. The notice:

Venture capital investment Schedule 2

Tax offset for ESVCLP investments Part 1

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(a) must enable the member to work out the amount of the

member's

tax offset by including enough information to

enable the member to work out the member's share of the

notional tax offset; and

(b) must be given to the member within 3 months after the end of

the income year, or within such further time as the

Commissioner allows.

(5) The sum of all the percentages determined under subsection (2) in

relation to the

members of the trust or partnership must not exceed

100%.

61-775 Amount of the ESVCLP tax offset--trustees

If subsection 61-760(3) applies, the amount of the

tax offset for

the income year is the difference between:

(a) what would, under section 61-765, have been the amount of

the tax offset to which the trust would have been entitled if it

had been an individual; and

(b) if

members of the trust are entitled to tax offsets under

subsection 61-760(2) arising from the same contributions

from which the trustee's entitlement arises under

subsection 61-760(3)--the sum of the amounts, under

section 61-770, of those tax offsets.

3 Subsection 63-10(1) (after table item 30)

Insert:

ESVCLP

tax offset under

Subdivision 61-P

You may carry it forward to a later

income year (under Division 65)

4 Application of amendments

The amendments made by this Part apply in relation to contributions

made on or after 1 July 2016 to an ESVCLP that became registered,

under subsection 13-1(1A) of the Venture Capital Act 2002, on or after

7 December 2015 (whether or not it was conditionally registered, under

subsection 13-5(1A) of that Act, before that day).

Schedule 2 Venture capital investment

Part 1 Tax offset for ESVCLP investments

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

5 Contributions made to ESVCLPs in previous income years

Subdivision 61-P of the Income Tax Assessment Act 1997 as added by

this Part, and item 4 of this Part, apply in relation to the first income

year starting on or after 1 July 2016 (the initial income year) as if:

(a) any contribution that a limited partner of an ESVCLP made

to the ESVCLP during an earlier income year were made

during the initial income year; and

(b) any eligible venture capital investments made by the

ESVCLP:

(i) during an earlier income year; and

(ii) after the first contribution made by the partner to the

ESVCLP;

were made during the initial income year.

Venture capital investment Schedule 2

ESVCLP fund size cap Part 2

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Part 2--ESVCLP fund size cap

Venture Capital Act 2002

6 Subparagraph 9-3(1)(d)(ii)

Omit "$100 million", substitute "$200 million".

7 Application of amendment

The amendment made by this Part applies in relation to registration of

partnerships under the Venture Capital Act 2002 as ESVCLPs on or

after 1 July 2016 (including registrations arising from applications made

before that day).

Schedule 2 Venture capital investment

Part 3 Removing the ESVCLP divestiture registration requirement

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 3--Removing the ESVCLP divestiture

registration requirement

Income Tax Assessment Act 1997

8 After subsection 51-54(1)

Insert:

(1A) An entity's share of any gain or profit made:

(a) by an

ESVCLP that is

unconditionally registered; and

(b) from the disposal or other realisation of an

eligible venture

capital investment;

is exempt from income tax to the extent that, were that disposal or

other realisation to be a

disposal of a

CGT asset, the equivalent

capital gain arising from the

CGT event would be disregarded

because of a partial exemption from the CGT event under

section 118-408.

9 Subparagraph 118-407(1)(d)(iv)

Omit ", and met the

divestiture registration requirement".

10 Subsection 118-407(1) (note)

Omit "Note", substitute "Note 1".

11 At the end of subsection 118-407(1)

Add:

Note 2:

This section does not apply if you get a partial exemption in relation to

a CGT event under section 118-408.

12 Subsection 118-407(5)

Repeal the subsection.

13 After section 118-407

Insert:

Venture capital investment Schedule 2

Removing the ESVCLP divestiture registration requirement Part 3

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

118-408 Partial exemption for some capital gains otherwise fully

exempt under section 118-407

(1) Despite section 118-407, you get only a partial exemption for a

capital gain from a

CGT event relating to an

eligible venture

capital investment if:

(a) apart from this section, all of your share in the capital gain

from the CGT event relating to the investment would be

disregarded under section 118-407; and

(b) at the end of an income year to which subsection (4) applies

(a valuation year), the sum of the values of:

(i) the assets of the company or unit trust in which the

investment is made; and

(ii) the assets of each other entity that is a

connected entity

of the company or unit trust;

exceeds $250 million; and

(i) if there is only one valuation year--the end of the

period of 6 months after the end of that valuation year;

(ii) if there is more than one valuation year--the end of the

period of 6 months after the end of the earliest of those

valuation years.

(2) If subsection (1) applies, work out your

capital gain using the

formula:

Normal capital gain

Valuation year capital gain

�-

where:

normal capital gain is what your

capital gain from the

CGT

event would be apart from section 118-407 and this section.

valuation year capital gain is the capital gain you would have

made in relation to the

CGT event if the CGT event had

happened:

(a) if there is only one valuation year--at the end of the period

of 6 months after the end of that valuation year; or

(b) if there is more than one valuation year--at the end of the

period of 6 months after the end of the earliest of those

valuation years.

Schedule 2 Venture capital investment

Part 3 Removing the ESVCLP divestiture registration requirement

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(3) Despite subsection (2), you are taken not to have a

capital gain, or

capital loss, from the

CGT event if the amount worked out

under the formula in that subsection would be less than zero.

(4) This subsection applies to any income year that:

(a) precedes the income year in which the

CGT event happens;

but

(b) does not precede the income year in which the investment

was made.

Note:

There must always be at least one valuation year, because

paragraph 118-407(1)(d) ensures the CGT event will not happen in the

year the investment was made.

(5) Section 118-407 does not apply in relation to a

CGT event if this

section applies in relation to the CGT event.

14 Subsection 995-1(1) (definition of divestiture registration

requirement)

Repeal the definition.

Venture Capital Act 2002

15 Paragraph 9-3(1)(i)

Repeal the paragraph.

16 Subsections 9-3(3) and (6)

Repeal the subsections.

17 Section 17-3

Repeal the section.

18 Paragraph 17-5(1)(ab)

Repeal the paragraph, substitute:

(ab) a partnership registered as an

ESVCLP does not meet the

registration requirements of an ESVCLP that are not

investment registration requirements; or

19 Section 17-15

Omit "17-3,".

Schedule 2 Venture capital investment

Part 4 CGT exemption for fixed and unit trust beneficiaries of partners in ESVCLPs

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 4--CGT exemption for fixed and unit trust

beneficiaries of partners in ESVCLPs

Income Tax Assessment Act 1997

21 After paragraph 104-71(3)(a)

Insert:

(aa) an amount that is not included in the assessable income of an

ESVCLP because of subsection 51-54(1) or (1A) of this

Act; or

22 At the end of subsection 104-71(3)

Add:

; or (c) proceeds from a CGT event if:

(i) the CGT event relates to an

eligible venture capital

investment; and

(ii) the share of a partner in an ESVCLP in a

capital gain

capital loss from the CGT event is disregarded under

section 118-407; or

(d) that part of the proceeds from a CGT event, relating to an

eligible venture capital investment, for which there is a

partial exemption under section 118-408.

23 Application of amendments

The amendments made by this Part apply in relation to payments made,

in respect of a unit or interest in a trust, in an income year starting on or

after 1 July 2016.

Venture capital investment Schedule 2

Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest Part 5

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Part 5--Requirements for entities in which VCLPs,

ESVCLPs and AFOFs invest

Income Tax Assessment Act 1997

24 Paragraphs 118-425(3)(a) to (c)

Repeal the paragraphs, substitute:

(a) more than 75% of the assets (determined by value) that are

assets of either:

(i) the company; or

(ii) any entity controlled by the company in a way described

in section 328-125 (a controlled entity);

must be used primarily in activities that are not ineligible

activities mentioned in subsection (13) of this section;

(b) more than 75% of the persons who are employees of either or

both of the following:

(i) the company;

(ii) any one or more of its controlled entities;

must be engaged (as such employees) primarily in activities

that are not ineligible activities mentioned in subsection (13)

of this section;

exempt

income and

non-assessable non-exempt income of:

(i) the company; and

(ii) each of its controlled entities;

must come from activities that are not ineligible activities

mentioned in subsection (13) of this section.

25 Subsection 118-425(3) (note 3)

Repeal the note, substitute:

Note 3:

A company that fails to meet at least 2 of the requirements can still be

eligible if:

(a) Innovation Australia determines that the company's primary

activity is not ineligible and the failure is temporary: see

subsection (14); or

(b) all amounts invested in the company are appropriately invested

within the first 6 months: see subsection (14A).

Schedule 2 Venture capital investment

Part 5 Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Innovation Australia may also determine that the activities of a

controlled entity of the company are to be disregarded in applying this

section to the company: see subsection (14B).

26 Subsection 118-425(4)

Repeal the subsection, substitute:

Investment in other entities

(4) The company must not invest, in another entity, any part of the

amount invested, unless:

(a) the other entity:

(i) is

connected with the company (but not because the

other entity is an

associate of the company as a result

of an investment made in the other entity by the

partnership); and

(ii) meets the requirements of subsections (3) to (7); or

(b) the other entity:

(i) is, after the investment is made, controlled by the

company in a way described in section 328-125; and

(ii) meets the requirements of subsections (2) to (7) of this

section (other than subsection (3)).

However, this subsection does not prevent the company from

depositing money with an

ADI, or with a body authorised by or

under a law of a foreign country to carry on banking business in

that country.

Note 1:

This requirement is ongoing. It is not limited to the circumstances at

the time the investment was made.

Note 2:

The other entity can be taken to meet the requirements of

subsection (2) if Innovation Australia determines that its activities are

complementary to activities of the company or other controlled

entities and that the company meets those requirements at the time of

the investment: see subsection (14C).

Investment in the capacity of a trustee

(4A) The company must not, in the capacity of a trustee, use any part of

the amount invested.

Note:

This requirement is ongoing. It is not limited to the circumstances at

the time the investment was made.

Venture capital investment Schedule 2

Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest Part 5

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

27 Subsection 118-425(11)

Repeal the subsection.

28 After subsection 118-425(14)

Insert:

Temporary exception to the requirements for predominant activity

(14A) A company is taken to meet the requirements of subsection (3)

even if it fails to satisfy at least 2 of the requirements in that

subsection if:

(a) the company's sole purpose is making one or more

investments that are

eligible venture capital investments, or

would be eligible venture capital investments apart from

paragraph (1)(d); and

(b) during the 6 month period starting immediately before the

first investment made by a

VCLP,

ESVCLP,

AFOF or

eligible venture capital investor, the company has used all of

the amounts invested in it:

(i) to make investments of a kind referred to in

paragraph (a); or

(ii) to engage in activities that are ancillary or incidental to

making those investments.

However, this subsection applies to the company only for that 6

month period.

Activities disregarded in applying the predominant activity test

(14B) If

Innovation Australia determines under section 25-15 of the

Venture Capital Act 2002 that:

(a) the activities of the controlled entity of a company are

complementary to one or more of the activities, of the

company or its other controlled entities, that are not ineligible

activities mentioned in subsection (13) of this section; and

(b) the activities that, taken together, constitute the principal

activities of the company and all of its controlled entities are

not ineligible activities mentioned in subsection (13) of this

section; and

specified in the determination, the activities of the controlled

Schedule 2 Venture capital investment

Part 5 Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

entity are disregarded when applying subsection (3) of this

section to the company;

in applying subsection (3) of this section to the company,

disregard, for the period specified in the determination, the

activities of the controlled entity.

Other entity can be taken to meet requirements relating to location

in Australia

(14C) In applying subsection (4) to a company in relation to its

investment in another entity, the other entity is taken, for the

purposes of subparagraph (4)(b)(ii), to meet the requirements of

subsection (2) if

Innovation Australia determines under

section 25-15 of the Venture Capital Act 2002 that:

(a) the activities of the other entity are complementary to one or

more of the activities of the company or its other controlled

entities; and

(b) the company meets the requirements of subsection (2) of this

section at the time the investment is made, or will meet those

requirements at the time the investment is proposed to be

made.

29 Subsection 118-425(16)

Repeal the subsection.

30 Paragraphs 118-427(4)(a) to (c)

Repeal the paragraphs, substitute:

(a) more than 75% of the assets (determined by value) that are

assets of either:

(i) the unit trust; or

(ii) any entity controlled by the unit trust in a way described

in section 328-125 (a controlled entity);

must be used primarily in activities that are not ineligible

activities mentioned in subsection (14) of this section;

(b) more than 75% of the persons who are employees of either or

both of the following:

(i) the trustee of the unit trust;

(ii) any one or more of the unit trust's controlled entities;

Venture capital investment Schedule 2

Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest Part 5

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

must be engaged (as such employees) primarily in activities

that are not ineligible activities mentioned in subsection (14)

of this section;

exempt

income and

non-assessable non-exempt income of:

(i) the unit trust; and

(ii) each of its controlled entities;

must come from activities that are not ineligible activities

mentioned in subsection (14) of this section.

31 At the end of subsection 118-427(4)

Add:

Note 4:

Innovation Australia may also determine that the activities of a

controlled entity of the unit trust are to be disregarded in applying this

section to the unit trust: see subsection (15A).

32 Subsection 118-427(5)

Repeal the subsection, substitute:

Investment in other entities

(5) The unit trust must not invest, in another entity, any part of the

amount invested, unless:

(a) the other entity:

(i) is

connected with the unit trust (but not because the

other entity is an

associate of the unit trust as a result of

an investment made in the other entity by the

partnership); and

(ii) meets the requirements of subsections (4) to (8); or

(b) the other entity:

(i) is, after the investment is made, controlled by the unit

trust in a way described in section 328-125; and

(ii) meets the requirements of subsections (3) to (8) of this

section (other than subsection (4)).

However, this subsection does not prevent the unit trust from

depositing money with an

ADI, or with a body authorised by or

under a law of a foreign country to carry on banking business in

that country.

Schedule 2 Venture capital investment

Part 5 Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Note 1:

This requirement is ongoing. It is not limited to the circumstances at

the time the investment was made.

Note 2:

The other entity can be taken to meet the requirements of

subsection (3) if Innovation Australia determines that its activities are

complementary to activities of the unit trust or other controlled entities

and that the unit trust meets those requirements at the time of the

investment: see subsection (15B).

Investment in the capacity of a trustee

(5A) The unit trust must not, in the capacity of a trustee, use any part of

the amount invested.

Note:

This requirement is ongoing. It is not limited to the circumstances at

the time the investment was made.

33 After subsection 118-427(15)

Insert:

Activities disregarded in applying the predominant activity test

(15A) If

Innovation Australia determines under section 25-15 of the

Venture Capital Act 2002 that:

(a) the activities of the controlled entity of a unit trust are

complementary to one or more of the activities, of the unit

trust or its other controlled entities, that are not ineligible

activities mentioned in subsection (14) of this section; and

(b) the activities that, taken together, constitute the principal

activities of the unit trust and all of its controlled entities are

not ineligible activities mentioned in subsection (14) of this

section; and

specified in the determination, the activities of the controlled

entity are disregarded when applying subsection (4) of this

section to the unit trust;

in applying subsection (4) of this section to the unit trust,

disregard, for the period specified in the determination, the

activities of the controlled entity.

Venture capital investment Schedule 2

Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest Part 5

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Other entity can be taken to meet requirements relating to location

in Australia

(15B) In applying subsection (5) to a unit trust in relation to its

investment in another entity, the other entity is taken, for the

purposes of subparagraph (5)(b)(ii), to meet the requirements of

subsection (3) if

Innovation Australia determines under

section 25-15 of the Venture Capital Act 2002 that:

(a) the activities of the other entity are complementary to one or

more of the activities of the unit trust or its other controlled

entities; and

(b) the unit trust meets the requirements of subsection (3) of this

section at the time the investment is made, or will meet those

requirements at the time the investment is proposed to be

made.

34 Subsection 118-435(1)

Omit "subsections 118-425(2), (3), (4) and (5)", substitute

"subsections 118-425(2), (3), (4), (4A) and (5)".

Venture Capital Act 2002

35 Paragraph 15-1(ga)

Repeal the paragraph, substitute:

(ga) for an investment in a company that the partnership held

throughout the financial year--a statement from a general

partner as to whether the company met the requirements of

subsections 118-425(3), (4), (4A) and (5) of the Income Tax

Assessment Act 1997 at all times during that year;

36 Paragraph 15-1(gb)

After "(5)", insert ", (5A)".

37 Paragraphs 15-10(c) and (d)

Repeal the paragraphs, substitute:

a statement from a general partner as to whether the company

met the requirements of subsections 118-425(3), (4), (4A)

and (5) of the Income Tax Assessment Act 1997 at all times

during the quarter after the investment was made; and

Schedule 2 Venture capital investment

Part 5 Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(d) for each disposal of an investment in a company during the

quarter--a statement from a general partner as to whether the

company met the requirements of subsections 118-425(3),

(4), (4A) and (5) of the Income Tax Assessment Act 1997 at

all times during the quarter up to the day of disposal; and

38 Paragraph 15-10(e)

After "(5)", insert ", (5A)".

39 Paragraphs 21-20(1)(g) to (i)

Repeal the paragraphs, substitute:

(g) for each investment in a company that the entity held

throughout that year--a statement as to whether the company

met the requirements of subsections 118-425(3), (4), (4A)

and (5) of the Income Tax Assessment Act 1997 at all times

during that year;

(h) for each investment in a company that the entity made during

that year--a statement as to whether the company met the

requirements of subsections 118-425(3), (4), (4A) and (5) of

the Income Tax Assessment Act 1997 at all times during that

year after the investment was made;

(i) for each investment in a company that the entity disposed of

during that year--a statement as to whether the company met

the requirements of subsections 118-425(3), (4), (4A) and (5)

of the Income Tax Assessment Act 1997 at all times during

that year up to the day of disposal;

40 Paragraph 21-20(1)(j)

After "(5)", insert ", (5A)".

41 Section 25-15 (heading)

Repeal the heading, substitute:

25-15 Innovation Australia may determine matters relating to

requirements for eligible venture capital investments

42 Subsections 25-15(1) and (1A)

Repeal the subsections, substitute:

Venture capital investment Schedule 2

Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest Part 5

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(1)

Innovation Australia may, on the application of a

general partner

of a partnership registered as a

VCLP, an

ESVCLP or an

AFOF,

determine:

(a) the matters set out in paragraphs 118-425(14)(a) and (b) of

the Income Tax Assessment Act 1997; or

(b) the matters set out in paragraphs 118-425(14B)(a), (b) and (c)

of that Act; or

that Act; or

(d) the matters set out in paragraphs 118-427(15)(a) and (b) of

that Act; or

(e) the matters set out in paragraphs 118-427(15A)(a), (b) and

(f) the matters set out in paragraphs 118-427(15B)(a) and (b) of

that Act.

Note:

Determining these matters allows for the relaxation of some of the

requirements for eligible venture capital investments under

sections 118-425 and 118-427 of the Income Tax Assessment Act

1997.

(1A) In making a determination under paragraph (1)(b) or (e),

Innovation Australia must specify in the determination a period

for the purposes of paragraph 118-425(14B)(c) or 118-427(15A)(c)

of the Income Tax Assessment Act 1997, as the case requires.

43 After paragraph 29-1(i)

Insert:

; (j) decisions under subsection 25-15(1A) specifying a period;

44 Application of amendments

(1)

The amendments of the Income Tax Assessment Act 1997 made by this

Part apply in relation to the 2016-17 income year and later income

years.

(2)

The amendments of sections 15-1 and 21-20 of the Venture Capital Act

2002 made by this Part apply in relation to the first financial year to

start on or after the commencement of this item, and in relation to later

financial years.

Schedule 2 Venture capital investment

Part 5 Requirements for entities in which VCLPs, ESVCLPs and AFOFs invest

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(3)

The amendments of section 15-10 of the Venture Capital Act 2002

made by this Part apply in relation to the first quarter to start on or after

the commencement of this item, and in relation to later quarters.

45 Pending applications under section 25-15 of the Venture

Capital Act 2002

(1)

Section 25-15 of the Venture Capital Act 2002 as amended by this Part

applies after the commencement of this item to applications made under

subsection 25-15(1) of that Act that were pending immediately before

that commencement as if they had been made under

paragraph 25-15(1)(a) of that Act as so amended.

(2)

Section 25-15 of the Venture Capital Act 2002 as amended by this Part

applies after the commencement of this item to applications made under

subsection 25-15(1A) of that Act that were pending immediately before

that commencement as if they had been made under

paragraph 25-15(1)(d) of that Act as so amended.

Venture capital investment Schedule 2

Foreign venture capital funds of funds Part 6

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Part 6--Foreign venture capital funds of funds

Income Tax Assessment Act 1997

46 After paragraph 118-420(1)(b)

Insert:

(ba) the partner is a

widely held foreign venture capital fund of

funds; or

47 After subsection 118-420(5)

Insert:

(6) An entity is a widely held foreign venture capital fund of funds if:

(a) the entity is a

foreign venture capital fund of funds; and

(b) the entity is a

widely held entity; and

(c)

eligible venture capital partners (other than foreign venture

capital fund of funds) ultimately hold the rights to at least

90% of the entity's income; and

(d) each other entity who:

(i) if the entity is a

limited partnership--is a

general

partner of the partnership; or

(ii) otherwise--exercises day to day control of the entity;

is a

foreign resident.

48 Before paragraph 842-230(1)(a)

Insert:

(aa) a

widely held entity;

49 Subsection 842-230(2)

Omit "Without limiting subsection (1) of this section, an entity is an

IMR widely held entity", substitute "An entity is a widely held entity".

50 Paragraph 842-235(6)(a)

Repeal the paragraph, substitute:

(a) paragraph 842-230(1)(a), (b) or (c); or

Schedule 2 Venture capital investment

Part 6 Foreign venture capital funds of funds

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

51 Subsection 995-1(1)

Insert:

widely held entity has the meaning given by

subsection 842-230(2).

widely held foreign venture capital fund of funds has the meaning

given by subsection 118-420(6).

Venture Capital Act 2002

52 At the end of subsection 9-3(5)

Add:

; or (e) a

widely held foreign venture capital fund of funds.

53 Application of amendments

The amendments of the Income Tax Assessment Act 1997 made by this

Part apply in relation to the 2016-17 income year and later income

years.

Venture capital investment Schedule 2

Rulings that activities are not ineligible activities Part 7

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

Part 7--Rulings that activities are not ineligible

activities

Income Tax Assessment Act 1997

54 At the end of subsections 118-425(13) and 118-427(14)

Add:

Note:

Under Division 362 in Schedule 1 to the Taxation Administration Act

1953, Innovation Australia can make rulings that activities, or classes

of activities, are not ineligible activities.

55 Subsection 995-1(1) (definition of private ruling)

Omit "section 359-5", substitute "sections 359-5 and 362-25".

56 Subsection 995-1(1) (definition of public ruling)

Omit "section 358-5", substitute "sections 358-5 and 362-5".

Taxation Administration Act 1953

57 Section 357-1 in Schedule 1

Omit "and 360", substitute ", 360 and 362".

58 At the end of section 357-1 in Schedule 1

Add:

Note:

In limited circumstances, Innovation Australia can make rulings.

59 At the end of section 357-5 in Schedule 1

Add:

(3) A further object of this Part is to provide a way for you to find out

Innovation Australia's view about whether activities are not

ineligible activities for the purposes of applying capital gains tax

provisions to venture capital investments.

Note:

For rulings by Innovation Australia: see Division 362.

Schedule 2 Venture capital investment

Part 7 Rulings that activities are not ineligible activities

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

60 At the end of section 357-50 in Schedule 1

Add:

Note:

Section 362-70 modifies how this Subdivision applies to rulings by

Innovation Australia.

61 At the end of Part 5-5 in Schedule 1

Add:

Division 362--Rulings by Innovation Australia that

activities are not ineligible activities

Guide to Division 362

362-1 What this Division is about

Innovation Australia may make public rulings and private rulings

expressing its view on whether activities are not ineligible

activities for the purposes of applying capital gains tax provisions

to venture capital investments.

Note:

An entity's involvement in ineligible activities can affect whether an

investment is an eligible venture capital investment for the purpose of

accessing a capital gains tax exemption under Subdivision 118-F of

the Income Tax Assessment Act 1997.

Table of sections

Public rulings by Innovation Australia

362-5

Innovation Australia may make public rulings on a specified class of

activities

362-10

Application of public rulings

362-15

When a public ruling ceases to apply

362-20

Withdrawing public rulings

Private rulings by Innovation Australia

362-25

Innovation Australia may make private rulings on a specified activity

362-30

Applying for a private ruling

362-35

Innovation Australia must give notice of its decision

362-40

Private rulings must contain certain details

362-45

Application of private rulings

Venture capital investment Schedule 2

Rulings that activities are not ineligible activities Part 7

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

362-50

Delays in making private rulings

362-55

When a private ruling ceases to apply

362-60

Withdrawing private rulings

General provisions

362-65

When rulings are binding on the Commissioner and Innovation Australia

362-70

Application of common rules under Subdivision 357-B

362-75

Application of Divisions 358 and 359

Public rulings by Innovation Australia

362-5 Innovation Australia may make public rulings on a specified

class of activities

(1)

Innovation Australia may make a ruling that Innovation Australia

considers that activities included in a specified class of activities:

(a) are not ineligible activities for the purposes of

subsections 118-425(13) and 118-427(14) of the Income Tax

Assessment Act 1997; or

(b) in specified circumstances, are not such ineligible activities;

if Innovation Australia is satisfied that the activities included in

that class are not such ineligible activities, or are not in those

circumstances such ineligible activities, as the case requires.

(2) Such a ruling is a public ruling if it:

(a) is published; and

(b) states that it is a public ruling.

(3)

Innovation Australia must publish notice of the making of a

public ruling in the Gazette.

Note:

The validity of a ruling is not affected merely because a provision of

this Part relating to the form of the ruling or the procedure for making

it has not been complied with: see section 357-90.

362-10 Application of public rulings

public ruling under this Division applies from the time it is

published or from such earlier or later time as is specified in the

ruling.

Schedule 2 Venture capital investment

Part 7 Rulings that activities are not ineligible activities

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

362-15 When a public ruling ceases to apply

(1) A

public ruling under this Division may specify the time at which

it ceases to apply.

(2) If a

public ruling under this Division does not do this, it applies

until it is withdrawn.

362-20 Withdrawing public rulings

(1)

Innovation Australia must withdraw a

public ruling made under

this Division, by publishing notice of the withdrawal, if:

(a) it is no longer satisfied of the matter about which it was

required to be satisfied under subsection 362-5(1); or

(b) the ruling is inconsistent with a decision of a court.

(2) The withdrawal takes effect from the time specified in the notice.

That time must not be before the time the notice is published.

(3)

Innovation Australia must publish notice of the withdrawal of the

ruling in the Gazette.

Private rulings by Innovation Australia

362-25 Innovation Australia may make private rulings on a specified

activity

(1)

Innovation Australia may, on application, make a ruling that

Innovation Australia considers that a specified activity:

(a) is not an ineligible activity for the purposes of

subsections 118-425(13) and 118-427(14) of the Income Tax

Assessment Act 1997; or

(b) in specified circumstances, is not such an ineligible activity;

if Innovation Australia is satisfied that the activity is not such an

ineligible activity, or is not in those circumstances such an

ineligible activity, as the case requires.

(2) Such a ruling is a private ruling.

Note:

Decisions making such a ruling, and decisions refusing to make such a

ruling, are reviewable under Part 5 of the Venture Capital Act 2002.

Venture capital investment Schedule 2

Rulings that activities are not ineligible activities Part 7

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(3) In considering whether to make a

private ruling under this

Division,

Innovation Australia must apply any principles made

under subsection (4).

(4)

Innovation Australia may, by legislative instrument, make

principles about making

private rulings under this Division.

(5) A failure to comply with subsection (3) does not affect the validity

of the ruling.

362-30 Applying for a private ruling

general partner of a

limited partnership registered as a

VCLP,

ESVCLP or an

AFOF may, in the

form approved by

Innovation Australia, apply to Innovation Australia for a

private

ruling under this Division.

362-35 Innovation Australia must give notice of its decision

(1) If

Innovation Australia makes a

private ruling under this

Division, Innovation Australia must notify the

general partner,

and the Commissioner, as soon as practicable after the ruling is

made.

(2) If

Innovation Australia refuses to make a

private ruling under this

Division, Innovation Australia must:

(a) notify the

general partner as soon as practicable after the

refusal; and

(b) provide reasons for the refusal.

362-40 Private rulings must contain certain details

(1) A

private ruling under this Division must state that it is a private

ruling.

(2) A

private ruling under this Division must identify the entity to

whom it applies and specify the activity to which it relates.

Note:

Innovation Australia must tell the applicant which assumptions

Innovation Australia made in making the ruling: see section 357-110.

Schedule 2 Venture capital investment

Part 7 Rulings that activities are not ineligible activities

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

362-45 Application of private rulings

private ruling under this Division applies from the time it is

published or from such earlier or later time as is specified in the

ruling.

362-50 Delays in making private rulings

(1) The applicant for a

private ruling under this Division may give

Innovation Australia a written notice requiring Innovation

Australia to make the ruling if, at the end of 60 days after the

application was made, Innovation Australia has neither:

(a) made the ruling; nor

(b) told the applicant that Innovation Australia has refused to

make the ruling.

(2) The 60 day period mentioned in subsection (1) is extended in a

circumstance applicable under the table by the extension period

applicable to that circumstance. If 2 or more circumstances are

applicable, ignore any overlap between the periods of extension.

Extending the 60 day period

Item

Innovation Australia, during

the 60 day period:

The 60 day period is extended by

the number of days in this period:

requests further information under

section 357-105 (as that section

applies because of section 362-70)

the period starting on the day the

information was requested and

ending on the day it is received by

Innovation Australia

tells the applicant about assumptions

Innovation Australia proposes to

make under section 357-110 (as that

section applies because of

section 362-70)

the period starting on the day

Innovation Australia tells the

applicant and ending on the day on

which Innovation Australia receives

the applicant's response about the

assumptions

tells the applicant about information

provided by a third party that

Innovation Australia proposes to

take into account under

section 357-120 (as that section

applies because of section 362-70)

the period starting on the day

Innovation Australia tells the

applicant and ending on the day on

which Innovation Australia receives

the applicant's response about the

information

Venture capital investment Schedule 2

Rulings that activities are not ineligible activities Part 7

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

(3) If

Innovation Australia:

(a) does not make the ruling within 30 days of the notice under

subsection (1) being given; and

(b) has not otherwise declined to make the ruling by the end of

that period;

Innovation Australia is taken to have refused to make the ruling at

the end of that period.

Note:

Decisions refusing to make such a ruling are reviewable under Part 5

of the Venture Capital Act 2002.

362-55 When a private ruling ceases to apply

(1) A

private ruling under this Division may specify the time at which

it ceases to apply.

(2) If a

private ruling under this Division does not do this, it applies

until it is withdrawn.

362-60 Withdrawing private rulings

(1)

Innovation Australia must withdraw a

private ruling made under

this Division if:

(a) it is no longer satisfied of the matter about which it was

required to be satisfied under subsection 362-25(1); or

(b) the ruling is inconsistent with a decision of a court.

(2)

Innovation Australia must give notice of the withdrawal to a

general partner of the

limited partnership to which the ruling

related.

General provisions

362-65 When rulings are binding on the Commissioner and

Innovation Australia

(1) A ruling under this Division binds the Commissioner and

Innovation Australia in relation to an entity (whether or not the

entity is aware of the ruling) if:

(a) the ruling applies to the entity; and

(b) the entity relies on the ruling by acting (or omitting to act) in

accordance with the ruling.

Schedule 2 Venture capital investment

Part 7 Rulings that activities are not ineligible activities

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

(2) If the ruling is withdrawn under this Division, it continues to bind

the Commissioner and

Innovation Australia in relation to the

entity until the end of the income year following the income year in

which it is withdrawn, but only to the extent that the ruling affected

investments made before the withdrawal took effect.

362-70 Application of common rules under Subdivision 357-B

Despite section 357-50:

(a) section 357-60 does not apply in relation to a ruling under

this Division; and

(b) sections 357-70, 357-85 and 357-95 apply, in relation to a

ruling under this Division, to

Innovation Australia in the

same way they apply to the Commissioner; and

(i) in relation to a ruling under this Division as if a

document referred to in paragraph 357-100(b) were

required to be signed by a member of Innovation

Australia, and not by a person referred to in that

paragraph; and

(ii) in relation to a

private ruling under this Division in the

same way it applies to a

public ruling; and

(d) sections 357-105 to 357-125 apply in relation to a ruling

under this Division as if references in those sections to the

Commissioner were references to Innovation Australia.

362-75 Application of Divisions 358 and 359

(1) Division 358 does not apply in relation to a

public ruling under

this Division, or in relation to the making of such a ruling.

(2) Division 359 does not apply in relation to a

private ruling under

this Division, or in relation to the making of such a ruling.

Venture Capital Act 2002

62 At the end of section 29-1

Add:

Venture capital investment Schedule 2

Rulings that activities are not ineligible activities Part 7

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

; (k) decisions under section 362-25 in Schedule 1 to the Taxation

Administration Act 1953 making a

private ruling, or

decisions refusing to make a private ruling under that section;

(l) decisions under section 362-60 in Schedule 1 to that Act

withdrawing a private ruling.

63 Application of amendments

The amendments made by this Part apply in relation to the 2016-17

income year and later income years.

Schedule 2 Venture capital investment

Part 8 Auditing requirements

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 8--Auditing requirements

Income Tax Assessment Act 1997

64 Subsection 118-425(5)

Repeal the subsection, substitute:

Registered auditor

(5) The company must have as its auditor a

registered auditor at all

times (if any) referred to in subsection (5A) during which the

company:

(a) is not a proprietary company within the meaning of the

Corporations Act 2001; or

(b) is a large proprietary company within the meaning of that

Act; or

permitted entity value if the amount

provided for under subsection 118-440(9) were $12.5

million.

Note:

This requirement is ongoing.

(5A) The times are:

(a) the end of the income year in which the investment is made;

and

(b) all times after the end of that income year.

65 After subsection 118-425(10)

Insert:

(10A) However, for the purposes of this section, the value of the asset or

investment at that time is the value provided for by

section 118-450 if:

(a) there are no such audited accounts; and

(b) the entity does not have an auditor at that time; and

to have an auditor at that time.

Venture capital investment Schedule 2

Auditing requirements Part 8

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

66 Subsection 118-427(6)

Repeal the subsection, substitute:

Registered auditor

(6) The unit trust must have as its auditor a

registered auditor at all

times (if any) referred to in subsection (6A) during which the unit

trust:

(a) if it were a company:

(i) would not be a proprietary company within the meaning

of the Corporations Act 2001; or

(ii) would be a large proprietary company within the

meaning of that Act; or

(b) would exceed the

permitted entity value if the amount

provided for under subsection 118-440(9) were $12.5

million.

Note:

This requirement is ongoing.

(6A) The times are:

(a) the end of the income year in which the investment is made;

and

(b) all times after the end of that income year.

67 Subsection 118-427(11)

Repeal the subsection, substitute:

The value of an asset or investment

(11) The value of an asset or investment of an entity at a particular time

for the purposes of this section is:

(a) the value of the asset or investment as shown in a statement,

prepared in accordance with the

accounting standards and

audited by the entity's auditor, showing that value as at a

time no longer than 12 months before that time; or

(b) the value provided for by section 118-450 if:

(i) the entity does not have an auditor at that time; and

(ii) the entity is not required under subsection (6) of this

section to have an auditor at that time.

Schedule 2 Venture capital investment

Part 8 Auditing requirements

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

68 At the end of section 118-428

Add:

(4) However, for the purposes of this section, the value of the

investment at that time is the value provided for by

section 118-450 if:

(a) there are no such audited accounts; and

(b) the entity does not have an auditor at that time.

69 After subsection 118-440(2)

Insert:

(2A) However, for the purposes of this section, the total value of its

assets at that time is the sum of the values of those assets provided

for by section 118-450 if:

(a) there are no such audited accounts; and

(b) the entity does not have an auditor at that time; and

118-427(6) to have an auditor at that time.

70 At the end of Subdivision 118-F

Add:

118-450 Values of assets and investments of entities without auditors

(1) If, under a provision of this Subdivision, the value of an asset or

investment at a particular time is the value provided for by this

section, that value is:

(a) if paragraph (b) does not apply--its

market value at that

time; or

(b) the amount stated to be its current market value, at that time

or a time in the 12 months preceding that time, in a statutory

declaration by:

(i) if the entity is a company--the directors of the

company; or

(ii) if the entity is a unit trust--the trustees of the unit trust.

(2) Paragraph (1)(b) does not apply if the Commissioner reasonably

believes that the amount stated in the statutory declaration to be the

Venture capital investment Schedule 2

Auditing requirements Part 8

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

market value of the asset or investment at the relevant time is

inaccurate.

71 Subsection 995-1(1)

Insert:

registered auditor, in relation to an entity, means:

(a) a person registered as an auditor under a law in force in a

State or a Territory; or

(b) if the entity is not an Australian resident--a person registered

as an auditor under a law in force in the country of which the

entity is a resident.

72 Application of amendments

The amendments made by this Part apply in relation to the 2016-17

income year and later income years.

Schedule 2 Venture capital investment

Part 9 Managed investment trusts

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 9--Managed investment trusts

Income Tax Assessment Act 1997

73 After subsection 275-10(4)

Insert:

(4A) In determining whether a trust is covered by subsection (4),

disregard any interest that the trust has in a

VCLP or an

ESVCLP

unless:

(a) the trust is a

general partner of the VCLP or ESVCLP; or

(b) the trust has

committed capital in the partnership that, taken

together with the sum of the amounts of committed capital in

the partnership of any of that partner's

associates (other than

associates to whom subsection (4B) applies), exceeds 30% of

the partnership's committed capital.

(4B) This subsection applies to:

(a) an

ADI; or

(b) a

life insurance company; or

(i) that is constituted by a law of a State or internal

Territory; and

(ii) that carries on life insurance business within the

meaning of section 11 of the Life Insurance Act 1995; or

(d) a widely-held complying superannuation fund within the

meaning of section 4A of the Pooled Development Funds Act

1992; or

(e) a

widely held foreign venture capital fund of funds.

74 After subsection 275-100(1)

Insert:

(1A) Without limiting paragraph (1)(b), if:

(a) a

VCLP or an

ESVCLP owns a

CGT asset at the time

referred to in that paragraph; and

(b) at that time, the

managed investment trust has an interest in

the asset as a

limited partner of the VCLP or ESVCLP;

Venture capital investment Schedule 2

Managed investment trusts Part 9

No. , 2016

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

for the purposes of that paragraph, the managed investment trust is

taken to own the asset to the extent of that interest.

Taxation Administration Act 1953

75 After subsection 12-400(2) in Schedule 1

Insert:

(2A) In determining whether a trust is covered by subsection (2),

disregard any interest that the trust has in a

VCLP or an

ESVCLP

unless:

(a) the trust is a

general partner of the VCLP or ESVCLP; or

(b) the trust has

committed capital in the partnership that, taken

together with the sum of the amounts of committed capital in

the partnership of any of that partner's

associates (other than

associates to whom subsection (2B) applies), exceeds 30% of

the partnership's committed capital.

(2B) This subsection applies to:

(a) an

ADI; or

(b) a

life insurance company; or

(i) that is constituted by a law of a State or internal

Territory; and

(ii) that carries on life insurance business within the

meaning of section 11 of the Life Insurance Act 1995; or

(d) a widely-held complying superannuation fund within the

meaning of section 4A of the Pooled Development Funds Act

1992; or

(e) a

widely held foreign venture capital fund of funds.

76 Application of amendments

The amendments made by this Part apply in relation to the 2016-17

income year and later income years.

Schedule 2 Venture capital investment

Part 10 Conditional registration

Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016

No. , 2016

Part 10--Conditional registration

Venture Capital Act 2002

77 Paragraph 13-5(1)(b)

Repeal the paragraph, substitute:

(b) one or more of the following applies:

(i) the application for registration does not meet the

requirements under section 11-1;

(ii) any further information requested under section 11-10

has not been provided;

(iii) the partnership does not meet the

registration

requirements of a VCLP;

78 Paragraph 13-5(1)(c)

Omit "

registration", substitute "registration".

79 Paragraph 13-5(1A)(b)

Repeal the paragraph, substitute:

(b) one or more of the following applies:

(i) the application for registration does not meet the

requirements under section 11-1;

(ii) any further information requested under section 11-10

has not been provided;

(iii) the partnership does not meet the

registration

requirements of an ESVCLP;

80 Paragraph 13-5(1A)(c)

Omit "

registration", substitute "registration".

81 Paragraph 13-5(2)(b)

Repeal the paragraph, substitute:

(b) one or more of the following applies:

(i) the application for registration does not meet the

requirements under section 11-1;

(ii) any further information requested under section 11-10

has not been provided;

Commonwealth of Australia Bills

TAX LAWS AMENDMENT (TAX INCENTIVES FOR INNOVATION) BILL 2016