SYDNEY, Australia – The Australian Venture Capital Association (AVCAL) has requested the government revamp its domestic and international venture capital laws to benefit domestic institutional investors and attract capital from overseas.
AVCAL made its suggestions to the Ralph Committee, a government committee charged with proposing ways to overhaul the nation’s business tax system.
The association wants the government to stop taxing foreign public pensions that invest in Australian venture capital and instead adopt a practice used by the United States and the United Kingdom where such levies are left to a pension’s home country. Only 12% of the total capital raised last year by Australian VCs came from foreign investors, with almost none from the U.S. or the U.K., according to a joint survey by AVCAL and the consulting firm Arthur Anderson.
Australian venture firms raised A$266 million ($175 million) in 1998, while all private equity firms, including VC outfits, raised A$476 million ($313 million), said John Dyson, chairman of AVCAL.
Additionally, AVCAL wants the government to continue taxing individual domestic venture investors on their gains instead of taxing venture capital firms as companies because an individual’s tax rate could be lower. Australian public pensions, for example, pay 15% taxes while companies pay 36%.
The Ralph Committee, however, might recommend a lower figure and, in a preliminary report, suggested that Australian venture capital funds, which are structured as trusts, be taxed as companies.
The government will decide which of the committee’s tax-change suggestions to implement after the group submits a final report at the end of July. Mr. Dyson said any legislation stemming from the Ralph report likely would be enacted by mid-2000.
Australian pensions, known as superannuation funds, commit roughly 80% of the money invested in Australian private equity funds, explained John Read, a director at Continental Venture Capital in Sydney.
AVCAL also wants the government to repeal a tax triggered when one company buys another using stock. Right now, the purchased company’s shareholders are taxed on the stock they receive as payment when the company is sold. The venture capital group would prefer taxes be charged only when shares are sold by shareholders because current arrangements discourage companies from joining forces, Mr. Read said. Mr. Dyson noted that the tax levied on the shares received upon a sale can actually prompt shareholders to sell the stock in order to pay tax created by receipt.
Tax reform has been on and off the Australian government’s agenda for 10 to 15 years, Mr. Dyson said, and the current government, which has a more pro-business slant, also has been addressing the country’s reliance on the personal income tax. A goods and services tax recently was implemented, Mr. Dyson noted.
Until recently, Australian venture capital was concentrated on development and expansion capital, largely in industries such as manufacturing, Mr. Dyson said. But in the past five years, the Australian venture industry has come to resemble the U.S. model. Spurred by American success in the early-stage and high-tech investment areas, Australian VCs are now more interested in high technology, especially information technology, said the AVCAL chairman. A handful of firms now will make seed- and early-stage investments, he added. AVCAL has about 30 member firms, representing all the major investors, Mr. Dyson said.