ESVCLP: Australia's best-kept tax secret

What is an ESVCLP, and why does the tax break only apply to venture capital?

An ESVCLP (Early Stage Venture Capital Limited Partnership) is a government-registered venture capital fund structure that pools money from investors and invests it in unlisted, early-stage Australian companies. Registration under the Venture Capital Act 2002 gives investors two tax breaks: no tax on eligible gains, and an offset of up to 10% of what they put in.1,2

The concession targets a funding gap. Early-stage companies can't borrow against profits or assets, and super funds put only about 4.9% of assets into private equity and venture combined.5 AustralianSuper, the largest, has about 0.34% of its fund committed to Australian venture.6 The government waives tax on the gains provided the money goes into young Australian companies, under a size limit and outside excluded activities.1,7

A fund that backs larger companies, or hasn't registered, gets nothing extra.

What a fund has to do to be an ESVCLP

A fund has to register and keep meeting the rules, and many venture funds, especially larger, later-stage ones, aren't registered. A client in an unregistered fund is taxed under the new CGT rules like any other asset.1

Sources: business.gov.au, ATO, MinterEllison and Treasury's September 2026 exposure draft.1,2,8,7 The 2027 figures need amendments to the Venture Capital Act 2002, aren't law yet, and are meant to apply to new and existing funds.

The higher ceilings let a fund keep backing its winners for longer before the exemption thins out. Other structures are covered in ESVCLP, VCLP and unit trusts.

Who can invest in an ESVCLP?

ESVCLPs are usually offered to wholesale investors under an information memorandum. For individuals that usually means net assets of at least $2.5 million, or gross income of at least $250,000 in each of the last two financial years, on a qualified accountant's certificate valid for up to two years.9 The other routes in are in The wholesale investor test.

What ESVCLP investors get: a 10% offset and 0% tax

The offset is up to 10% of the client's contributions in the year, capped at their share of eligible investments the fund makes in that year and the two months after. That investment total also counts the incidental costs of making the investments and the administrative expenses associated with them.3,10 Management fees and other costs outside that total only reduce the offset if they leave the client's share below what the client paid in, so the real figure can sit a little under 10%. The fund works out each partner's offset and reports it on the annual tax statement. On $100,000 that's up to $10,000 off the tax bill.

Unused offset carries forward but is never refunded. Because commitments are called over several years, the offset arrives in stages. Only funds unconditionally registered on or after 7 December 2015 qualify.3 After your client commits covers the paperwork.

The proposed start-up CGT concession is a separate measure for shares held directly in young companies, and an ESVCLP partner's eligible gains don't need it. The 2027 CGT changes explains who it's for.

The client's share of income and gains from eligible investments the fund has held for at least 12 months is exempt, and passes through the partnership untaxed.1,3 If a company's assets pass $250 million, growth after six months past the end of that income year becomes taxable.3

Exempt gains are also outside the 30% minimum tax on capital gains. The minimum tax is worked out on the capital gains left at the end of the usual CGT calculation, and the ESVCLP rules disregard an eligible gain before that calculation starts.4,11 The proposed 30% minimum tax on discretionary trusts works the same way: it applies to the trust's net income, and the explanatory memorandum confirms that amounts that aren't assessable income are outside it. That bill was introduced on 14 October 2026 and isn't law yet.12

How much difference does it make? A worked example

A top-rate investor (47%) invests $100,000 after 1 July 2027 and sells ten years later for $500,000, with 3% inflation. The ESVCLP column assumes the same $400,000 gain after fees. The rules behind the shares columns are in The 2027 CGT changes.

The new-rules figure adjusts the $100,000 for ten years of 3% inflation ($134,392). The ESVCLP figure includes the offset, which is claimed in the years the money goes in, not when the fund exits.

On this gain the ESVCLP's advantage over an ETF rises from about $104,000 under the old rules to about $182,000 under the new ones. The table can't show that a startup fund carries far more risk than an ETF.

The downsides: fees, losses and lock-up

Typical terms are a 2% annual management fee on committed capital and 20% carried interest, often above an 8% hurdle; the worked example assumes the gain is net of these. How a venture fund works shows the fees in dollars.

Losses on eligible investments are disregarded, so a failed company can't offset gains elsewhere.3 In a power-law portfolio the exemption on the winners usually outweighs the losses given up. See How venture returns work.

Funds typically run 10 years or more, with capital called over the first three to five. The spread between good and average venture managers is far wider than in listed equities, and a 10% offset won't rescue a fund that picks badly.13 How to vet a venture fund has the questions to ask.

How to invest in an ESVCLP

1. Confirm your client is eligible. Get a qualified accountant's certificate showing they meet the wholesale test. It lasts up to two years.9
2. Check the fund is registered. Ask for its ESVCLP registration, check it against the government's register, and confirm it is unconditionally registered, since the offset depends on it.1,3 (Tall Order's Fund III is on it, listed as Skalata Fund III, LP. Details are on our investors page.)
3. Read the information memorandum. Look at fund size, stage, sectors, fees, hurdle, carry, minimum commitment and the expected capital call schedule.
4. Interrogate the manager. Ask for realised returns (DPI, the cash actually paid back to investors), not just paper returns (TVPI). The full list is in How to vet a venture fund.
5. Ask what share of each capital call goes into eligible investments, so you know the real offset.
6. Plan for the capital calls. Make sure the money is there across the drawdown period, and that the client has tax payable to absorb the offset (or is happy to carry it forward).
7. Get the structure right. Decide whether to invest personally or through a company, trust or SMSF. See Which entity should invest?

Frequently asked questions

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.

Contact Justine Fund III