After your client commits
What happens between signing the subscription documents and the fund winding up ten years later. Capital calls and defaults, claiming the ESVCLP offset, reports and distributions, and what happens to the interest on a sale, a death or a separation.
TL;DR
- Committing takes a few documents. A subscription agreement, identity checks and a qualified accountant's certificate showing the client is a wholesale investor. The certificate must be less than two years old.1
- The money goes in through capital calls over several years. Notice is commonly about ten days; the partnership agreement sets the actual period.2
- Missing a call is costly. Fund agreements commonly allow high interest, forfeiture of part of the investor's account, or a forced sale at a reduced price.2
- The ESVCLP offset is claimed for the year the money is paid in. Individuals use question T7 in the supplementary section of their return, and it's capped by the fund's eligible investments to two months after year end. Unused amounts carry forward.3
- The interest is hard to move. A sale or transfer, including after a death or separation, usually needs the manager's consent.
What does a client sign when they commit to a venture fund?
Usually a subscription agreement or application form, which binds the client to the fund's limited partnership agreement: fees, capital calls, transfers and default. How to vet a venture fund covers what to look for. The manager will also ask for identity documents for the investing entity and its controllers, bank details and tax details.
For an individual wholesale investor that usually means a qualified accountant's certificate, given within the last two years, showing net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years.1 The wholesale investor test covers companies, trusts and SMSFs.
Settle the investing entity before signing; changing it later is slow and can have tax consequences. See Which entity should invest?
How do capital calls work?
Funds typically call capital over three to five years, for investments and fees; about 25% a year is common. Each notice gives the amount, the due date and the purpose, and the Institutional Limited Partners Association (ILPA) template breaks it into investments, management fees and expenses.4 A US law firm guide describes calls as usually made on about ten days' notice.2 Check the actual period in the agreement, and whether it counts business or calendar days.
Worth sorting out at the start:
- Who receives call notices, and who can approve the payment. For a trust, company or SMSF, that's the trustee or directors, and everyone who needs to sign should know the calls are coming.
- Where the cash will come from for the next few years. An SMSF generally can't borrow money to meet a call.5
- What happens during holidays, when signatories may be unreachable for ten days.
What happens if a client misses a call?
The partnership agreement decides. Remedies commonly include high interest on the late amount, forfeiture of some or all of the investor's capital account, withheld distributions, a forced sale of the interest at a reduced price, and legal action.2 If a client can't keep paying, a negotiated sale to another investor is generally the preferred route, and managers may help find a buyer.2 Unpaid amounts earn no ESVCLP offset, since it's based on contributions actually made.6
When and how is the ESVCLP offset claimed?
For the income year in which the client pays the money in, not the year they commit.6 The offset is 10% of the lesser of what the client paid in during the year and their share (by interest in the fund's capital at year end) of the fund's eligible investments from the start of that year until two months after it ends.3
So if a client pays $62,500 in calls during 2026-27 and their share of the fund's eligible investments by 31 August 2027 is at least that much, the offset for 2026-27 is $6,250. The investment side also counts the incidental costs of making those investments and the administrative expenses associated with them.7 Management fees and other contributions that fall outside that total only reduce the offset if they leave the client's share below what the client paid in, and that part of the offset is lost rather than deferred.6 The fund does the calculation and reports each partner's offset on its annual tax statement, and generally can't confirm the figures until after August.
Which money counts toward one year's offset
A client who pays $62,500 in calls during 2026-27, with at least that share of eligible investments by 31 August 2027, has an offset of $6,250. Fees and money not invested in time reduce it.
- Wait for the fund's annual tax statement. It gives the contribution and offset figures for the year.
- For an individual, enter the offset at question T7 (the ESVCLP offset), label K, in the supplementary section of the tax return.3
- Enter any unused offset carried forward from the previous year at T7, label M. It may need to be reduced by 30 cents for every dollar of unused net exempt income.3
- Check the notice of assessment. Any unused offset to carry forward will show there.3
- If the client invests through a trust or partnership, they need written notice from the trustee or partnership of their share of the offset.3
The offset is non-refundable.3 Companies and super funds (including SMSFs, rather than their members) claim it in their own returns.6 How it works for each entity is in Which entity should invest? and Venture in an SMSF.
What arrives over the next ten years?
Call notices every few months early on, a report each quarter and a tax statement each year. The ESVCLP guide covers the tax side.
Calls come in the early years, distributions in the later ones
- Y1
- Y2
- Y3
- Y4
- Y5
- Y6
- Y7
- Y8
- Y9
- Y10
| When | What the client receives | What to do with it |
|---|---|---|
| Each call, mainly years 1 to 4 | Capital call notice | Pay by the due date |
| Each quarter | Report with the fund's performance, a capital statement (for the fund or the client's own interest) and portfolio news | File it; use it for SMSF valuations |
| After each 30 June | Annual tax statement | Pass to the accountant for the tax return |
| Each year | Audited financial statements and usually an investor meeting | Check realised returns, not only paper values |
| Mainly years 5 to 10+ | Distribution notices | Record cash or shares received |
Typical, not universal. The fund's agreement and information memorandum set the actual reporting commitments. ILPA's reporting standards are quarterly.8
Reading a fund report explains what the numbers in those reports mean.
Distributions in cash and in shares
Sale proceeds are usually paid in cash. After a listing, a fund may instead distribute the shares in specie, leaving the client holding listed shares directly. For CGT, each partner already owns a share of every asset of the partnership, so the distribution is a disposal of the interests that pass between partners.9 For an ESVCLP partner, a gain on that disposal is exempt if the fund had held the investment for at least 12 months and the other conditions are met.10
Under the same partnership rules, most of the client's cost base in the shares is their market value on the distribution date; the small slice the client already owned through the fund keeps its original cost. A later sale is taxed under the normal rules, because the exemption only covers investments the fund still owns when the CGT event happens.10,9 The ATO hasn't published a ruling on ESVCLP distributions in specie, so work from the cost base figures in the fund's tax statement for the distribution.
Not yet settled
The ATO hasn't ruled on how the ESVCLP exemption applies to a distribution of shares in specie, or on the cost base the client takes. The position above is our reading of the partnership rules and s118-407, not ATO guidance. Use the figures in the fund's tax statement and confirm with the client's tax adviser.
Can a client sell or transfer their interest?
Yes, but not freely. Partnership agreements usually require the manager's consent, and the buyer has to be an investor the fund can accept, generally another wholesale investor. Secondary sales often happen at a discount to reported value, and the buyer takes on the unpaid commitment.
The ESVCLP offset is based on contributions paid into the fund, so a buyer gets no offset on the price they pay, only on calls they pay into the fund after the transfer. Any unused offset the seller has built up stays with the seller.6,7
Moving an interest between the client's own entities, say from their own name to a family trust, also needs consent, and it is a disposal for CGT unless a rollover applies. The ATO treats a disposal of a partnership interest as a disposal of the partner's share of each asset of the partnership, and where the parties aren't at arm's length the price is taken to be market value.9 For an ESVCLP, the part of the gain that relates to eligible investments the fund has held for 12 months or more is exempt; the part that relates to cash or newer investments is taxed normally.10,9 An SMSF can't buy the interest from a member or related party at all: the exceptions cover listed securities, business real property and in-house assets within the 5% limit, and a venture fund interest isn't any of them.5
Not yet settled
The ATO hasn't ruled on how the ESVCLP exemption applies when a partner transfers their interest. That the eligible part of the gain is exempt is our reading of s118-407 and the ATO's partnership ruling IT 2540, not ATO guidance. Confirm with the client's tax adviser before moving an interest.
What happens if a client dies?
An interest held personally passes to the executor and then to beneficiaries under the will. Agreements generally let the estate step in, but a transfer to a beneficiary usually needs the manager's consent. The commitment stays, so the estate keeps paying calls or arranges a sale.
Any capital gain or loss when the asset passes from the estate to a beneficiary is generally disregarded, with different rules if the beneficiary is, for example, a foreign resident or a super fund.11
If a company or trust holds the interest, it doesn't change hands on a death, though control of the entity may. If an SMSF holds it, the fund has to pay the member's death benefit as soon as possible and may need to sell assets to do so.12 Either way, the executor needs to know the commitment exists and where the call notices go.
What happens on a relationship breakdown?
If the interest is transferred to the other spouse under a court order, binding financial agreement or other qualifying formal agreement, the CGT relationship breakdown rollover applies and must be used. The receiving spouse takes over the original tax position; an informal split doesn't qualify.13
The transfer still needs the manager's consent, and the receiving spouse has to be an investor the fund can accept. Interests held in super fall under separate super splitting rules. Clients going through a separation should get family law and tax advice before agreeing to move a fund interest.
Frequently asked questions
The partnership agreement sets it. Around ten days is common, but check whether it counts business or calendar days.
The partnership agreement sets the remedies, which commonly include high interest, forfeiture of part of the investor's account, a forced sale of the interest at a reduced price, or legal action.
The income year in which the money is actually paid in. It's capped by the investor's share of what the fund invests in eligible companies by two months after year end.
At question T7 in the supplementary section: label K for the current year's offset and label M for any unused offset carried forward.
It's non-refundable, so unused amounts carry forward and show on the notice of assessment, though they may be reduced by unused net exempt income.
The part of the distribution that counts as a disposal is exempt for an ESVCLP partner if the fund held the investment for 12 months or more. A later sale of the shares is taxed under the normal rules, mostly on growth after the distribution date.
Usually only with the manager's consent and to a buyer the fund can accept. Secondary sales often happen at a discount, and the buyer takes on any unpaid commitment.
To a family trust, yes with the manager's consent, but it is a disposal at market value; the part of the gain relating to eligible investments held 12 months or more is exempt. An SMSF can't acquire the interest from a member or related party.
It passes to the estate, which keeps meeting calls or arranges a sale; a transfer to a beneficiary usually needs the manager's consent. Any gain when an asset passes to a beneficiary is generally disregarded.
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Talk to us about Fund III
Tall Order is a Melbourne seed fund. Fund III is a registered ESVCLP for wholesale investors. Justine Lum, our Head of IR, works with advisers and their clients.
Sources
- ASIC, via the Office of Impact Analysis, Impact analysis for ASIC Corporations (Qualified Accountant) Instrument 2026/734 (September 2026): certificate given within the preceding two years; net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years. ↩
- Morgan, Lewis & Bockius, Venture Capital & Private Equity Funds Deskbook: Avoiding and Handling Defaults (US practice). Capital usually called on 10 days' notice; common default remedies; a negotiated secondary sale as the preferred route. ↩
- Australian Taxation Office, T7 Early stage venture capital limited partnership 2026: working out the offset, labels K and M, carry-forward and net exempt income, notification through trusts and partnerships. ↩
- Institutional Limited Partners Association, ILPA Capital Call & Distribution Template: standard breakdown of capital call and distribution notices. ↩
- Australian Taxation Office, What are the SMSF investment restrictions: no borrowing, no acquiring assets from related parties. ↩
- Australian Taxation Office, ESVCLP tax incentives and concessions: offset calculation; commitments excluded; amounts not invested in time give no offset in that or any later year; super funds and SMSFs entitled rather than members. ↩
- ATO legal database, Income Tax Assessment Act 1997, section 61-765: the offset is 10% of the lesser of contributions and the partner's share of eligible venture capital investments in the year and two months after, including incidental costs of making them and associated administrative expenses. ↩
- Institutional Limited Partners Association, ILPA Reporting Template (v. 2.0): part of ILPA's quarterly reporting standards. ↩
- Australian Taxation Office, Taxation Ruling IT 2540: disposal of a partnership interest is a disposal of the partner's interest in each partnership asset, with proceeds apportioned; non-arm's length assignments at market value. ↩
- ATO legal database, Income Tax Assessment Act 1997, section 118-407: a partner's share of a gain or loss is disregarded where the CGT event relates to an eligible investment the ESVCLP made and still owns, held for at least 12 months. ↩
- Australian Taxation Office, How CGT applies to inherited assets: gains disregarded when an asset passes to a beneficiary; exceptions. ↩
- Australian Taxation Office, Death of an SMSF member: death benefits paid as soon as possible; trustees may need to sell assets. ↩
- Australian Taxation Office, When the relationship breakdown rollover applies: court orders and binding agreements; automatic rollover; informal splits excluded. ↩