Venture in an SMSF

Can an SMSF invest in a venture fund or an ESVCLP?

Yes, if it passes the same tests as any other SMSF investment: the trust deed allows it, it fits the investment strategy, the fund clearly owns it, it's made at arm's length and market value, and it meets the sole purpose test.1

The fund can't borrow, so every capital call comes from cash it already has.1 Whether the fund qualifies as a wholesale investor is a separate question; see The wholesale investor test.

The sole purpose test in plain English

Nobody connected with the fund should get a benefit from its investments today.1,7 A venture fund rarely raises this on its own. It can when the member is connected to the investment, for example if the SMSF invests to help a business the member works for or advises, or the member gets fees, a board seat or another perk because the SMSF invested. Breaches can lead to penalties, the fund being made non-complying, or the trustees being disqualified.7

Related parties and in-house assets

An SMSF can't buy assets from members or related parties, apart from listed securities, business real property and in-house assets within the 5% limit, all at market value. A venture fund interest isn't any of those, so the SMSF has to subscribe to the fund itself. It can't take over an interest a member or their family company already holds.7

In-house assets can't exceed 5% of the fund's total assets at market value.7 With an unrelated manager this usually isn't an issue. It can be if the member or their associates have a stake in, or influence over, the fund or its manager, which is worth checking with an SMSF specialist before the fund commits.

What should the investment strategy say about venture?

The ATO's usual requirements apply: in writing, tailored to the fund, reviewed regularly, and covering risk and return, diversification, liquidity and insurance. Ranges of 0% to 100% per asset class don't meet it, and a strategy without target allocations has to list the fund's material assets and say why they suit the members' retirement goals.1

For a venture commitment, it's worth writing down:

• The full commitment, not just the amount called so far, since the rest will be called over the next few years.
• How the commitment fits the members' ages, retirement dates and pension plans.
• Why the concentration is acceptable. A fund backs many companies, but it's still one manager, one asset class and one illiquid holding.
• Where the cash for calls and pensions will come from.

For sizing, see How much to allocate and Venture in a portfolio.

How do trustees value a venture fund interest each year?

At market value, as at 30 June each year, in the fund's accounts.2 For a venture fund interest, trustees typically use the manager's latest reported value of the investor's share (the net asset value in the capital statement) as the evidence of market value. The ATO expects valuations of unlisted assets to rest on objective data and a method that can be explained to a third party, so the auditor may ask how the manager arrives at its figures.2

A qualified independent valuer isn't required every year. The ATO suggests one where the asset is a large share of the fund or the valuation is likely to be complex, and trustees relying on an earlier valuation should assess whether it's still appropriate and document why.2

In practice, trustees keep the manager's statement closest to 30 June with a note of its date and the manager's valuation policy, add anything else their accountant needs, and file it for the auditor.2 Reading a fund report explains how those numbers are built.

The 30 June values also feed each member's total super balance, which decides whether the new tax on balances over $3 million applies.2,5

Will the fund have cash for capital calls and pensions?

Only if the commitment is planned against the fund's other outgoings. Venture funds typically call commitments over three to five years and return most of the money in the second half of a ten-year term, while the SMSF keeps paying expenses, pensions and, if a member dies, a death benefit that should be paid as soon as possible.1,8

A secondary sale of a fund interest usually needs the manager's consent, is often at a discount and can take months, which matters because trustees may need to sell assets to pay a death benefit.8

Worth modelling with the client's accountant:

• The uncalled commitment, year by year, against the fund's cash and liquid assets.
• Minimum pension payments for each member, now and as more members move to pension phase.
• What happens if a member dies in year three, with half the commitment still to be called.

After your client commits covers call notices, timelines and what happens on default.

How are ESVCLP gains and the offset taxed inside super?

The fund is entitled to the ESVCLP offset, not its members.3 It's non-refundable, so it only helps if the fund has tax to reduce: usually yes in accumulation phase at 15%, often not when most assets support retirement phase pensions, whose income is exempt.4 An unused offset carries forward but is first reduced by net exempt income in a later year.3 Whether exempt pension income reduces it, and how the fund credits the offset to members' accounts, are questions for the fund's accountant.

Eligible ESVCLP gains are exempt for a super fund as for any other limited partner, and the matching losses are disregarded.3 But super already taxes gains lightly: a complying fund gets a one-third discount on assets held at least 12 months, so long-held gains in accumulation phase are taxed at about 10%, and super keeps that discount after the 2027 changes.4,9

Illustrative. The individual figure uses the worked example in The 2027 CGT changes (43% effective rate over ten years with 3% inflation). Ignores the new tax on balances over $3 million and the 10% offset.4,9,3

So the ESVCLP concessions are worth less inside super than in a top-rate individual's hands. Which entity should invest? compares the options.

How does the tax on super balances over $3 million affect a venture holding?

From 1 July 2026 an extra 15% applies to the share of a member's earnings that relates to the part of their total super balance over $3 million, and a further 10% to the part over $10 million. Both thresholds are indexed. For 2026-27 it applies if the balance is over $3 million at 30 June 2027. From 2027-28 it applies if the balance is over the threshold either just before the year starts or at its end. The first assessments arrive in the second half of 2027-28. The member can pay it personally or have it released from super.5

An SMSF works out its earnings from its taxable income with adjustments, so the tax broadly falls on realised earnings rather than paper gains. In most cases an actuary is needed to attribute those earnings to each affected member. Funds can elect to reset the cost base of assets they hold directly to market value at 30 June 2026 for this tax. The election covers all of those assets, has to be made by the due date of the 2026-27 annual return, and can't be revoked.6

A venture holding meets the tax at two points. Its 30 June value counts towards the member's balance, so a strong year on paper can push a member over $3 million. And it isn't yet clear whether an exempt ESVCLP gain counts towards the fund's earnings for this tax, or whether the cost base reset reaches assets held through a partnership, since the ATO says the election generally doesn't cover assets held indirectly. The ATO is still drafting its guidance, so these are questions for the fund's tax adviser.6

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