Policy

Policy and Research Update | November 2021

Welcome to the Australian Investment Council’s latest Policy and Research update for 2021.

Over the past few months, the Council has extensively engaged with government and government agencies via submissions and meetings on issues and consultations with various Government agencies.

In July, papers on two important policy issues relevant to Australia’s private capital investment industry – the Venture Capital Tax Concessions Review and the Evaluation of the 2021 foreign investment reforms were released for consultation. These occurred alongside further developments in relation to portfolio holding disclosure framework under the Your Future, Your Super reforms, and consultations on Foreign Financial Services Providers, Employee Share Schemes, Corporate Collective Investment Vehicles, the Research & Development Tax Incentive, University Research Commercialisation, Patent Boxes and Intellectual Property.

The Council is continuing to directly engage with the Government and Opposition and is in the process of developing a Blueprint on policy issues that are critical for private capital to present to both sides of government ahead of the Federal Election.

Venture Capital Tax Concessions Review

In the Federal Budget, the Government announced that there would be a review into the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes during the course of 2021. The consultation paper was released on 27 July 2021. We expect a report on the review outcome to be tabled in parliament towards the end of the calendar year.

The Council has been deeply engaged with both Treasury and Industry Innovation and Science Australia (IISA) who have joint oversight of the consultation and review process. The Council has played a central industry leadership role in the consultation process in providing quantitative and qualitative evidence supporting the role of the ESVCLP and VCLP programs within the economy and worked extensively with GP and adviser members to produce a detailed submission for the review.

Evaluation of the 2021 foreign investment reforms

Under the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 enacted last year, the Treasurer was legislatively required to evaluate the operation of the foreign investment framework reforms which commenced on 1 January 2021.

The Council has continued engage with the FIRB secretariat and Treasury on foreign investment policy and regulatory reforms and remains supportive of a comprehensive clear, predictable and efficient foreign investment framework that continues to maintain a flow and deployment of foreign investment capital. Our submission on this consultation can be viewed here.

Your Future, Your Super

The Council has been actively engaged in the various phases of consultation on the proposed Your Future, Your Super reforms because of the implications that these changes will have on the way superannuation funds develop and implement their investment strategies will have a significant bearing on the flow of private capital into Australian businesses over the long-term. On 25 May 2021, a submission was made to Treasury on the proposed Your Future, Your Super Regulations and associated measures. This consultation focused on Performance Benchmark reforms and changes to the Portfolio holdings disclosure framework. The Council continues to work closely with government on the requirements of the portfolio holdings disclosure framework as a critical issue for the private capital industry.

Research and industry knowledge building

Research activities supporting the Council’s advocacy efforts include the release of the second Future Jobs Barometer, a study on the job vacancies and skills in VC-backed businesses which is updated every six months.

A new Introduction to Venture Capital fact sheet is now available on the Council’s providing an overview of the venture capital ecosystem for those who are building knowledge on the industry. A new video explaining private credit has also been added to resources on the Council’s website.

In 2021, the Council has continued to provide online webinars as part of its growing ‘Knowledge Series’. Knowledge Series events have included a webinar on Insights on shifts in Australian consumer behaviour with LEK Consulting, amongst others focussing on industry activity and key data points with Preqin.

If you have any policy or research questions or issues you would like to discuss, please contact us.


May

Your Future, Your Super

Treasury released a consultation paper on the Your Future, Your Super Regulations and associated measures focusing on Performance Benchmark reforms and changes to the Portfolio holdings disclosure framework. The Council’s submission outlined the merits of adopting a real-time approach to monitoring and review of the market implications of the performance benchmarking regime, once it is implemented and that this be regularly reviewed in a short and long-term context. The Council continues to work closely with government on the requirements of the portfolio holdings disclosure framework as a issue critical for the private capital industry.

June

Software development activities and the Research and Development Tax Incentive (RDTI)

The Council made a submission to the Department of Industry, Science and Technology on refreshed guidance for software activities and the RDTI. Clear and accessible guidance on software development activities within the RDTI framework is an essential element of the innovation and tax system, and is able to drive innovation in businesses supported by new technologies in areas such as FinTech, cyber security, food technologies and health and medical services. The refreshed software guidance is a positive step towards providing information specific to the software sector to encourage innovation and to support future jobs and industries.

Senate Committee Inquiry into Australia as a Technology and Financial Centre

The Council presented a submission to the Senate Committee on Australia as a Technology and Financial Centre on its Third Issues Paper for the final phase of its inquiry.

July

Relief to Foreign Financial Services Providers

In continuing to outline the need for a globally competitive foreign investment regime, the Council made a submission to Treasury on proposed changes to Relief to Foreign Financial Service Providers. This consultation was part of the Global Talent Attraction package announced in the Federal Budget and focused on options to restore previous regulatory relief for Foreign Financial Service Providers and to create a fast-track licensing process for those that wish to establish more permanent operations in Australia.

August

Evaluation of the 2021 Foreign Investment Reforms

Consistent with the Council’s extensive involvement in foreign investment policy and regulatory reforms over recent years, we remain supportive of a comprehensive clear, predictable and efficient foreign investment review framework. Although the measures in effect from 1 January 2021 are still relatively new, the Council believes that consistent themes and issues are emerging from the experiences of investors and advisors. As highlighted in our previous submissions, these uncertainties have the potential to slow down foreign investment into Australian businesses, at a time when foreign investment capital is of critical importance to the nation’s economy. Read more.

Employee Share Schemes

The Australian Investment Council made a submission to Treasury on the Exposure Draft legislation related to 2021-22 Budget announcement on changes to the regulatory and tax arrangements for employee share schemes measures.

Patent Box Consultation

Australia has the capacity to be a world leader in the development of new medical technologies. To achieve this, the sector will need to be supported by a patent box regime that is competitive on a global scale and has the potential to attract investment, to accelerate our commercialisation pipeline, and to retain the IP within Australia. The Council’s submission to Treasury on the patent box consultation advocated for the patent box design principles to extend beyond the scope of the medical and biotechnology and clean energy sectors to include industries where Australia has a comparative advantage in areas such as food technology, agtech, space and quantum computing and critical minerals processing.

September

Venture Capital Tax Concessions Review

The Council lodged a submission to the Treasury and Industry, Innovation and Science Australia (IISA) on the Venture Capital Tax Concessions Review which was announced as part of the Government’s Digital Economy Strategy in the 2021–22 Federal Budget.

The consultation has focused on how effective VCLPs, ESVCLPs and Australian Funds of Funds (AFOFs) have been in attracting domestic and foreign capital, developing innovation, and expanding venture capital management skills and experience in the domestic market.

Throughout the consultation, the Council has maintained deep engagement with both Treasury and IISA who have joint oversight of the consultation and review process.

Our submission was produced in conjunction with a working group of GP and adviser members and broadly covers:

  • the effectiveness of the VCLP, ESVCLP and AFOF programs in supporting the growth of venture capital in Australia;
  • how the programs have contributed to jobs and economic growth, including economic modelling on the impact of the programs over the next decade;
  • where there is scope to improve the programs, including increasing the the $250 million asset value cap for VCLPs and the $50 million asset value cap for ESVCLPs to align them with today’s increased valuations, and continuing to link them to the CPI;
  • the growth of new industries such as Medtech, Fintech and Cleantech and the need to update the programs and associated regulation and legislation to take these, and other new industry sectors into consideration; and
  • the recommendation to introduce a Limited Partnership Collective Investment Vehicle to attract foreign capital in the longer term.

We are continuing to work closely with Treasury and IISA throughout this consultation.  A report on this review is expected to be handed to the Treasurer towards the end of this year, and will be subsequently tabled in the Parliament.

Corporate Collective Investment Vehicles – Regulatory and Tax Frameworks

The Council has been a long-term advocate for the need to introduce globally competitive collective investment vehicles in Australia. In principle, the Council welcomes the introduction of the new Corporate Collective Investment Vehicle (CCIV) regime, subject to the comments and observations that we made on the design and structure of the provisions, in particular the deeming of the sub-funds of CCIV to be trusts for tax law purposes. Our submission also advocates for strong need for a globally competitive Limited Partnership Collective Investment Vehicle and for the Government to prioritise its introduction.

R&DTI – Review of the dual-agency administration model

A strong, robust and consistent R&DTI scheme is important for maintaining the confidence of Australian businesses and entrepreneurs to invest in the future of our nation. The Council made a submission to the Board of Taxation on the R&DTI – Review of the dual-agency administration model following the Federal Budget announcement on 11 May 2021 and release of the Consultation Paper in June 2021.

Inquiry into the implications of common ownership and capital concentration in Australia

The Council has provided a submission in response to the Parliamentary Standing Committee on Economics’ Inquiry into the Implications of Common Ownership and Capital Concentration in Australia.

Other Policy & Advocacy Initiatives

Division 6C – Negative Control

The Council has continued to progress discussions with the ATO regarding Division 6C – Negative Control. Following an industry roundtable on 26 May, the Council followed up with a letter to the ATO reaffirming the Council’s disagreement with the ATO’s views and application of the laws with respect to Division 6C of the Income Tax Assessment Act 1936 as outlined in the ATO Guidance. The Council will reconvene with the ATO to work through the examples provided in coming weeks once the ATO has considered the Council’s latest paper.

Tax Determination TD 2011/25

The Legal and Tax Committee has considered key aspects of Taxation Ruling TR 2011/25 and will continue to consult with the ATO to ensure any changes are ‘fit for purpose’. The ATO’s private equity compliance team will present the Council’s final views to other teams within the ATO in the period ahead.

June

Private Equity and Venture Capital Strong Performance Continues

Quarterly PE and VC performance update by Eugene Snyman, Javern Cheah and Samuel Masters from Cambridge Associates.

Political Insights − Heat is rising on climate politics

Steve Lewis from Newgate Australia explores at climate change policy challenges in the Australian political landscape in a Political Insights article.

July

Introduction to Venture Capital industry resource

A new Introduction to Venture Capital fact sheet is now available on the Council’s website as part of the Introduction to Private Capital series. This information provides an overview of the venture capital ecosystem for those who are new to the industry and demonstrates how venture capital operates within the private capital ecosystem. Building on the Private Credit fact sheet launched in May, a video explaining private credit has been added to the page.

Four factors enabling HNW growth in private markets

Hurdles to private markets investing for high-net-worth individuals are increasingly easier to overcome, paving the way for substantial individual investment over the next five years with high-net-worth allocations forecast to reach an additional approximately $1.5 trillion-worth of assets under management by 2025. Article published with permission from Private Equity International.

August

Future Jobs Barometer

The Australian Investment Council’s Future Jobs Barometer, released in August, showed 3952 job vacancies in the portfolio companies of eight of the larger VC firms at the end of June 2021. Fintech dominated with 1906 job vacancies (48.25%) followed by Software as a Service 414 (10.48%), Design 225 (5.69%), Automotive 204 (5.16%), Health Services 190 (4.81%), Consumer 102 (2.58%) Marketplace 100 (2.53%), Scanners 92 (2.33%), Cybersecurity 89 (2.25%).

Political Insights − The Subtle Art of Trade Diplomacy

Steve Lewis, Senior Adviser with Newgate Australia shared insights from his interview with Dan Tehan, Minister for Trade, Tourism and Investment on trade and investment opportunities for Australia across the globe amidst geopolitical tensions.

Australian Private Equity and Venture Capital – Looking Past the Pandemic

The Council continues to partner with Cambridge Associates to produce a range of Australian PE and VC performance benchmarks. The latest update from Cambridge Associates shows the Australian private equity and venture capital has raised a significant $30.3 billion of capital to date. In Q1 2021, the industry continued to deploy capital into Australian and New Zealand companies and distribute capital back to investors. In aggregate over the 3-month period ending March 2021, the industry invested over $200 million and distributed more than $400 million, net of fees, back to investors, while the value of unrealised investments increased by over $600 million.

New Standard on Fraud and Corruption Control

A new Australian Standard AS8001:2008 - Fraud & Corruption Control was released on 11 June, 2021 . This Standard is considered the benchmark when it comes to how organisations can mitigate fraud and corruption risks. This Standard is of particular importance to Boards, and importantly how they assess their cyber risks.