ESVCLP – round tablediscussion 26 October 2011

ESVCLP

• ESVCLP program offers tax concessions to investors and fund managers

• Tax free benefit

• Higher after-tax return

• Straight forward?

• Consider the Australian tax implications at 3 different levels:

• The fund

• The investors

• The investee companies/trusts

The FundESVCLP Partnership CLP

Australian taxtreatment

Flow through Flow through Subject to 30%corporate tax

Tax losses Available to investorsbut capping applies;can offset againstother gains

Available to investors;can offset againstother gains

Losses are trappedwithin the CLP

Divestment Investor level Investor level CLP level

Offshore domicile Likely to be a flowthrough

Likely to be a flowthrough

Likely to be a flowthrough

Offshore investment Need to consider taximpact for investors

Need to consider taximpact for investors

Need to consider taximpact for investors

Investors• Distributions from eligible investments:

• Income and capital gains tax free to immediate investors

• Flipside: investors cannot benefit from the loss

• Tax concessions will be forfeited for certain re-investments in existinginvestee companies that no longer satisfy:

• the $50m total assets test; or

• Australian location test.

Investors• Individuals

• Tax free benefits are fully maximised

• Limited liability concession needs to be managed

• SMSFs

• Tax free benefits are maximised on a deferred basis

• Trusts

• Tax free benefits will be converted into tax deferred distributions

• Loss of tax concessions

• Corporate investors

• Likely to be distribution of unfranked dividends to shareholders

Fund manager

• Fund manager set-up as a limited company

• Benefit from limited liability in its capacity as general partner;

• Return from investments benefits from the same tax treatment asother investors (i.e. tax free);

• Performance and management fees

• Revenue a/c

Investors(Limitedpartners)

Fundmanager

(Co.)

ESVCLP

Fund manager

• Fund manager set-up as a limited partnership

• Return from investments benefits from the same tax treatment asother investors (i.e. tax free);

• Management fee

• Revenue a/c

• Performance fee

• Capital a/c and can benefit from CGT discount

• General partner?

Investors(Limitedpartners)

Fundmanager(VCMP)

ESVCLP

Exit

• Divestment

• CGT free

• Mandatory disposal (investee’s total assets > $250m)

• Ability to ‘maintain’ investment by disposing to a friendly party

• Can be for no cash consideration

• Use market value substitution to get a step up in the cost base of theinvestment

Disclaimer

• The contents herein are generic in nature and has beenprepared for discussion purposes only. The contents are notpurported to be tax, legal or business advice and should notbe relied upon as such.

• Machel Advisory Services and Pennam Partners are notresponsible and should not be held responsible if you haverelied on the above contents.

Machel Advisory ServicesLevel 10 530 Collins StreetMelbourne VIC 3000

P: +613 8635 1987F: +613 8102 5487E: machel@macheladvisory.com.au

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