Which entity should invest?

Can any entity claim the ESVCLP tax offset?

Yes. The ATO says a limited partner that contributes to an ESVCLP during the income year is entitled to the offset, and so is a partner of a partnership, or a beneficiary of a trust, that is itself the limited partner.1 The ESVCLP guide covers the offset itself.

It's up to 10% of what the entity actually pays in during the year, so uncalled commitments don't count, and it's capped by the entity's share of what the fund puts into eligible companies in that year and the two months after.1

An individual claims it in their own return. A company claims it against company tax; the ATO's worked examples include companies as limited partners.1

A super fund, SMSFs included, is entitled to the offset itself, not its members.1 It's worth much less once the fund is mostly paying pensions; Venture in an SMSF covers why.

In a trust, the trustee decides each beneficiary's share of the offset, which can differ from how income or capital is split. A beneficiary with a fixed entitlement to a share of the gains on the investments behind the offset, as a unitholder usually has, must get a matching share. Where the trustee is taxed on some trust income, it may keep the part it hasn't allocated.1

For every entity the offset is non-refundable. Unused amounts carry forward, but are first reduced by any net exempt income in the later year, so an entity with exempt income may not keep all of it.1

Does the tax exemption on gains work the same for every entity?

At the point the gain is made, yes. Australian and foreign resident limited partners are exempt on gains from the fund's eligible investments and on other income from them, and the matching losses are disregarded. If an investee's assets pass $250 million, growth from six months after the end of that income year is taxable.1 What differs is what happens when the money is paid on to the people behind the entity.

A company pays no tax on an exempt gain, so it has no franking credits to attach. Dividends paid from that gain are generally unfranked and taxed at the shareholders' own rates, so the saving holds while the money stays in the company.8

For a unit trust, a payment that isn't taxable in the unitholder's hands can reduce the cost base of their units, so some of the tax can come back when the units are sold.9 For a discretionary trust, the treatment depends on the deed and the beneficiaries. Both are worth confirming with a tax adviser before the trust commits.

How do the 2027 CGT changes affect where growth assets sit?

For ordinary growth assets, such as listed shares, property and funds that aren't ESVCLPs, the entity matters more than it did. From 1 July 2027, individuals, trusts and partnerships lose the 50% CGT discount; the cost base is indexed for inflation instead, and resident individuals pay at least 30% on the gain. Growth before that date keeps the discount.2 The 2027 CGT changes has the detail.

Companies never had the discount and still pay a flat 30%, or 25% if they qualify as a base rate entity.12 Complying super funds keep their one-third discount, so a long-held gain in the accumulation phase is taxed at about 10%, and income on assets that support pensions is exempt.3

Eligible ESVCLP gains stay exempt in all of these entities, so the ESVCLP's advantage over ordinary assets is largest for individuals and for trusts whose beneficiaries pay the top rate. It's smaller for a company, and smallest in a super fund in pension phase, where ordinary gains already go untaxed.

Some managers run a unit trust alongside the ESVCLP for investments that don't qualify. Gains made there are taxed under the normal rules for whichever entity holds the units. ESVCLP, VCLP and unit trusts explains the split.

Discretionary trusts and the proposed minimum tax

Bills introduced on 14 October 2026 would make the trustee of a discretionary trust pay a 30% minimum tax from 1 July 2028. Non-corporate beneficiaries would get a non-refundable credit for the trustee's tax on their share; corporate beneficiaries would not. A rollover from 1 July 2027 to 30 June 2030 would defer income tax and CGT on moving assets out to another structure. None of this is law yet.4,5

The tax applies to the trust's net income, and an exempt ESVCLP gain isn't usually part of net income, but nothing we've read settles the point. A trustee considering the rollover should also check whether the fund interest can move at all, since that needs the manager's consent. Venture in a family trust has the detail.

Super funds and the tax on balances over $3 million

From 1 July 2026, an extra 15% applies to the share of a member's super earnings that relates to the part of their balance over $3 million, and a further 10% to the part over $10 million. Both thresholds are indexed.6 For an SMSF, the earnings figure starts from the fund's taxable income with adjustments, so it broadly tracks realised earnings rather than paper gains.11

Whether an exempt ESVCLP gain counts towards those earnings isn't clear; the ATO is still drafting its guidance.11 For a client near the threshold, that's worth settling before deciding whether the venture allocation sits inside super.

How do the entities compare side by side?

Each row is a set of questions for the client's tax adviser, not a view on which entity suits a client.

Sources: ATO ESVCLP guidance, the Tax Reform No. 1 Act, ATO guidance on company tax, SMSF tax, trusts and the new super tax.1,2,12,3,4,5,6,9,8 Treatment depends on the client's circumstances and on rules still being finalised. Confirm with a tax adviser.

What else should shape the choice besides tax?

A fund interest lasts ten years or more, so control, cash and succession count as much as the tax rate.

Who will be making decisions in year eight?

Someone has to approve every capital call and sign any transfer for the life of the fund: the directors of a company, the trustee of a trust, and in practice the appointor of a discretionary trust. Succession for that role is worth settling early.

What happens on death?

An interest held personally passes through the estate, and the transfer to a beneficiary usually needs the manager's consent. If a company or trust holds it, the interest doesn't change hands on a death; control of the entity does. An SMSF has to pay a member's death benefit as soon as possible, which may mean selling assets to do it.14 After your client commits covers death and relationship breakdown.

Where will the cash for capital calls come from?

Commitments are usually called over three to five years, and an SMSF generally can't borrow to meet a call.15

Does the entity pass the wholesale test?

The test works differently for companies, trusts and super funds than for individuals. See The wholesale investor test.

Can it be changed later?

Not easily. Moving an interest between entities needs the manager's consent and is a disposal for CGT at market value unless a rollover applies. The ATO treats it as a disposal of the client's share of each of the fund's assets, so for an ESVCLP the part of the gain relating to eligible investments held 12 months or more is exempt and the rest is taxed normally.16,17 An SMSF can't acquire assets from members or related parties apart from listed securities, business real property and in-house assets within the 5% limit, so moving a personally held fund interest into super later is off the table.7 After your client commits covers transfers in more detail.

Does the start-up CGT concession change the choice?

Not for a fund investment. The proposed concession is for shares issued directly to founders, employees and early investors in young companies, and an ESVCLP partner's eligible gains are already exempt in every entity. It matters for clients who also hold start-up shares directly. The 2027 CGT changes has the detail.18

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