FSI Interim Report: Key Highlights for AVCAL Members
The Financial System Inquiry's interim report was released today.
Key issues identified in the report of relevance to AVCAL members include:
- Need to reduce barriers to PE and VC investment
- The report points out that, "venture capital and private equity funds tend to finance more innovative and high-growth firms. These firms are drivers of long-term productivity growth. Australia’s venture capital and private equity markets are small, and there are barriers to generating significant investor interest."
- The report recognises that, unlike other fund managers, venture capital fund managers are typically very involved in managing the ventures in their funds. Venture capital fund managers provide mentoring services, business expertise, and access to industry and market connections, which is reflected in management and monitoring costs."
- However, the report also points out that fee structures and the services these fees reflect may not always be transparent to investors. It suggests that greater transparency would allow investors to make more informed investment choices and lead to greater competition.
- Simplification of tax treatment of VCLPs
- The report states that "the tax treatment of Venture Capital Limited Partnerships (VCLPs) is complex and may be a barrier to fundraising".
- It notes the Board of Taxation's Review into VCLPs which made recommendations to simplify and reduce uncertainty, which would reduce barriers to investment.
- Improving access to R&D quarterly tax credits by new ventures
- The report notes that particularly for new ventures, access to quarterly R&D tax credits would help alleviate cash flow constraints.
- It suggests that this is an issue that should be considered as part of the Tax White Paper process.
Improving the tax treatment of managed funds
- Submissions received by the inquiry suggest that some tax settings in Australia distort international financial flows and restrict financial integration. Many of these issues have been raised before as part of the Johnson, Australia’s Future Tax System and Board of Tax reviews.
- Some proposed changes have been partially implemented, such as the investment management regime and the new tax system for MITs. Other changes are being considered by Government, such as the tax treatment of CIVs.
- To the extent that the changes are not being currently progressed, the Inquiry will refer these items to be considered by Australia’s Tax White Paper.
- Reducing the complexity and cost of external administration for SMEs
- The inquiry seeks views on the Government's 2012 proposals to reduce the complexity and cost of external administration for SMEs.
This page will continue to be updated with additional highlights from the interim report.
Author: Christian Gergis, Head of Policy and Research, AVCAL
Connecting private equity, venture capital and the broader business community at AVCAL’s first-ever Sydney gala dinner event.