ESVCLP, VCLP and unit trusts
The structures Australian venture funds use and what each one means for your client's tax. Why many managers pair an ESVCLP with a unit trust, and what to ask about it.
TL;DR
- An ESVCLP is the structure with a tax break for Australian investors. Up to a 10% offset on eligible contributions and exempt gains on eligible investments in early-stage companies.1
- A VCLP is mainly for foreign investors. It can back companies with up to $250 million in assets ($480 million proposed from July 2027), and its main tax break goes to eligible foreign investors.2,3
- Many managers run a unit trust alongside the partnership. The trust holds investments the ESVCLP can't, and takes investors who don't fit inside it. Unitholders get none of the venture concessions.4
- Ask the manager which vehicle your client is going into, and why. Then ask what share of each capital call goes where.
What structures do Australian venture funds use?
Australian venture funds are usually a registered limited partnership, a unit trust, or both side by side.4 The government runs three partnership programs under the Venture Capital Act 2002: the ESVCLP, the VCLP and the Australian Venture Capital Fund of Funds (AFOF).5,6
Registered partnerships are taxed on a flow-through basis. The partnership itself pays no tax, and income and gains pass through to the partners, who are taxed (or exempt) in their own hands.5,2
A unit trust needs no venture registration and can invest in almost any asset, but gets none of the venture tax concessions.4
| Structure | Who the tax break is for | What it invests in |
|---|---|---|
| ESVCLP | Australian and foreign limited partners | Early-stage companies, assets up to $50m at investment |
| VCLP | Mainly eligible foreign limited partners | Venture companies, assets up to $250m at investment |
| AFOF | Mainly eligible foreign investors | A portfolio of ESVCLPs and VCLPs |
| Unit trust | No venture concession | Anything its trust deed allows |
Sources: ATO, business.gov.au, MinterEllison. Asset limits are proposed to rise from 1 July 2027 (see below).
What's the difference between an ESVCLP and a VCLP?
The ESVCLP gives Australian investors the tax break. The VCLP has no early-stage test and can back larger companies, but its exemption is for eligible foreign investors; Australian investors in a VCLP are taxed on returns, though losses may be deductible.2,5
A VCLP's foreign limited partners are exempt on gains from eligible investments held at least 12 months if they're tax-exempt at home (a foreign pension fund, say) or provided less than 10% of committed capital.7
| ESVCLP | VCLP | |
|---|---|---|
| Built for | Early-stage venture | Venture and later-stage growth |
| Company size at investment (total assets) | $50m or less ($80m proposed from July 2027) | $250m or less ($480m proposed from July 2027) |
| Fund size | $10m to $200m ($270m proposed) | At least $10m |
| Upfront offset for investors | Up to 10% of eligible contributions | None |
| Gains for Australian investors | Exempt on eligible investments held 12+ months | Taxed |
| Gains for foreign investors | Exempt on eligible investments | Exempt if conditions are met |
| Losses | Disregarded | May be deductible for Australian investors |
| Manager's carry | Taxed on capital account | Taxed on capital account |
Sources: ATO, business.gov.au, Treasury. The July 2027 figures were announced in the 2026-27 Budget and went out as an exposure draft in September 2026. They need amendments to the Venture Capital Act 2002, aren't law yet, and are meant to apply to new and existing funds.3,8,9,2
The VCLP's $250 million cap dates from 2002; the proposed $480 million adjusts it for inflation.3
How big a company each structure can back
Australian clients mostly meet a VCLP when a manager with offshore investors runs one next to the vehicle the client is offered.
What is an AFOF?
An Australian Venture Capital Fund of Funds is a registered partnership that invests in ESVCLPs and VCLPs and can run for 5 to 20 years. As with the VCLP, the exemption is for eligible foreign investors; Australian investors are taxed on returns, with losses possibly deductible.6
Why do some managers run a unit trust alongside an ESVCLP?
A parallel unit trust lets the manager invest where the partnership can't. MinterEllison describes managers pairing registered partnerships with parallel funds, usually unit trusts, to keep the tax benefits on eligible investments and make ineligible ones through the trust.4 The usual reasons:
- Investments the ESVCLP can't make. An ESVCLP can only back companies under the asset limit and outside excluded activities such as property development, finance, insurance and infrastructure, and generally can't lend beyond permitted loans.9,4 A follow-on cheque into a company that has grown past $50 million in assets, for example, may have to sit in the trust.
- Investors who can't take a large share of the partnership. Apart from banks, life insurers, widely held super funds and some foreign funds of funds, no single investor can contribute more than 30% of an ESVCLP's committed capital without approval.9 A large investor may have the excess in the trust.
Where both exist, the manager usually invests them side by side in agreed proportions. The fund documents should set out how deals are split and how fees and carry apply to each vehicle; that split decides how much of your client's money gets the ESVCLP treatment.
How one commitment splits between the ESVCLP and the trust
Commits once. Each capital call is split between the two vehicles in the proportions the fund documents set.
Registered partnership. Pays no tax itself; results flow through to the partners.
$50m or less in assets at investment, outside property, finance and insurance.
Plus an offset of up to 10% of eligible contributions. Losses are disregarded.
No venture registration. Can hold almost anything its trust deed allows.
Such as a follow-on into a company that has grown past the asset limit.
Including the 2027 changes. No offset from the fund. Losses usually stay in the trust.
Runs both vehicles through the general partner and decides, under the fund documents, which vehicle each deal sits in.
Tall Order's Fund III is one example: a registered ESVCLP alongside a unit trust, open to wholesale investors only. It appears on the government's register under its legal name, Skalata Fund III, LP.
How does your client hold the interest, and what tax paperwork do they get?
In an ESVCLP or VCLP your client is a limited partner with a share of the partnership's income, gains and losses. In a unit trust they're a unitholder, taxed on their share of the trust's net income each year.5,4
| Limited partner (ESVCLP) | Unitholder (unit trust) | |
|---|---|---|
| What they hold | An interest in the partnership | Units in the trust |
| How money goes in | Capital calls against a commitment | Usually capital calls against a commitment |
| Tax on exits | Exempt on eligible investments | Taxed under normal CGT rules, including the 2027 changes |
| Upfront offset | Up to 10% of eligible contributions | None from the fund itself |
| Losses | Disregarded on eligible investments | Usually stay in the trust to offset its later gains |
General summary only. The detail depends on the fund documents and the client's circumstances.
An ESVCLP lodges a partnership tax return.5 Partners typically receive a statement of their share of income, exempt amounts and the offset for the year; a unit trust sends an annual tax statement of distribution components. The rules for splitting gains at 1 July 2027 are still in draft, and the Tax Reform No. 3 Bill (introduced 14 October 2026) also covers how the CGT changes apply to managed investment trusts, so trust statements may change shape.10,11,12 See The 2027 CGT changes.
A client in both vehicles gets two sets of paperwork. After your client commits covers capital calls and statements, and Reading a fund report covers what's in them.
What should you ask a manager about structure?
- Which vehicle is my client going into: the ESVCLP, a VCLP, a unit trust, or a mix? Ask for the registration of any partnership and check it on the business.gov.au register.9
- If there's a parallel trust, how are deals split between the vehicles, and has that split changed over the fund's life?
- What share of each capital call is expected to go into eligible investments? That decides the real ESVCLP offset.1
- What happens when a company outgrows the ESVCLP limits? Does the follow-on go to the trust, and how does that affect my client's share?
- Are fees and carry the same across both vehicles?
- When will tax statements arrive, and in what form?
- Which entity should hold the interest? That's a question for you and the client more than the manager. See Which entity should invest? and Venture in an SMSF.
For the wider due diligence list, see How to vet a venture fund. For the ESVCLP itself, see The ESVCLP guide.
Frequently asked questions
An ESVCLP backs early-stage companies and gives Australian and foreign partners an offset of up to 10% and exempt gains on eligible investments. A VCLP can back companies with up to $250 million in assets, but its exemption is for eligible foreign investors; Australian investors are taxed.
The 2026-27 Budget proposed raising it from $250 million to $480 million from 1 July 2027. Treasury released an exposure draft in September 2026; it isn't law yet.
An Australian Venture Capital Fund of Funds is a registered partnership that invests in ESVCLPs and VCLPs. Its exemption is aimed at eligible foreign investors.
To make investments the ESVCLP can't, such as follow-ons into companies past its asset limit, and to take investors who would exceed its 30% single-investor limit.
No. The offset and exemption go to limited partners in the registered partnership; a parallel unit trust is taxed under the normal rules.
It's flow-through: the partnership lodges a partnership return and pays no tax, and each partner is taxed, or exempt, on their share.
Ask the manager for its registration and check it on the business.gov.au register.
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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
- Australian Taxation Office, ESVCLP tax incentives and concessions. ↩
- business.gov.au, Venture Capital Limited Partnerships: eligibility, tax benefits and the proposed $480 million cap from 1 July 2027. ↩
- Australian Taxation Office, Tax reform: expanding venture capital incentives. ↩
- MinterEllison (Chambers Global Practice Guides, 2020), Alternative Funds: Australia. Ineligible activities for VCLPs and ESVCLPs, investor and investment limits, and parallel unit trusts. ↩
- Australian Taxation Office, Venture capital and early stage venture capital limited partnerships: flow-through treatment, VCLP and ESVCLP concessions, partnership tax return. ↩
- business.gov.au, Australian Venture Capital Fund of Funds (AFOF): eligibility and tax benefits. ↩
- Australian Taxation Office, VCLP tax incentives and concessions: conditions for foreign limited partners, carried interest. ↩
- Treasury, Expanding tax incentives for venture capital schemes: exposure draft consultation, 10 to 28 September 2026. Proposed ESVCLP and VCLP thresholds from 1 July 2027. ↩
- business.gov.au, Early Stage Venture Capital Limited Partnerships: eligibility, 30% investor limit and register. ↩
- Treasury, Capital Gains Tax and Negative Gearing: Tranche 2 Legislation, exposure drafts released 3 August 2026, including how to split gains made before and after 1 July 2027. ↩
- Treasurer, Consultation on next tranche of tax reform legislation, 4 August 2026: draft new residential dwelling definition (24 months from certificate of occupancy) and apportionment method. ↩
- Parliament of Australia, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026: introduced 14 October 2026, referred to the Senate Economics Legislation Committee (report due 13 November 2026). Before the House. ↩