ESVCLP: Australia's best-kept tax secret

What changed in the 2027 CGT reforms?

Since 1999, an individual who held an asset for 12 months or more has paid tax on half the gain. At the top marginal rate (47% including the Medicare levy) that's an effective 23.5%.3

The 2026-27 Federal Budget announced the end of that discount on 12 May 2026. The bill passed both houses of Parliament on 25 June and became law on 26 June 2026.5,1

From 1 July 2027 the purchase price of an asset held 12 months or more is adjusted for inflation, and resident individuals pay at least 30% on the real gain, including gains that reach them through a trust or partnership. Anyone who receives the Age Pension, JobSeeker or another listed income support payment during the year is exempt from the minimum.1,3

Growth up to 1 July 2027 keeps the 50% discount. The rules for splitting a gain at that date, using a valuation or a formula, are in a bill introduced on 14 October 2026. It isn't law yet, so the detail could change.3,6

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 its investors two tax breaks: no tax on eligible gains, and an offset of up to 10% of what they put in.14,9

The break is aimed at a funding gap. Young companies have no profits to lend against and few assets to borrow on, and most of them fail. Super funds put only about 4.9% of their assets into private equity and venture capital combined.15 So the government waives tax on investors' gains, provided the money goes into young Australian companies, under a size limit and outside excluded activities such as property and finance.14,16

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. If you invest through an unregistered fund, your gains are taxed under the new CGT rules like any other asset.14

Sources: business.gov.au, ATO, MinterEllison and Treasury's September 2026 exposure draft.14,9,10,16 The 2027 figures need changes to the Venture Capital Act 2002, aren't law yet, and are meant to apply to new and existing funds.

The higher limits would let a fund keep backing its successful companies for longer before the exemption starts to thin out.

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, confirmed by a qualified accountant's certificate that is valid for up to two years.17

Who pays more under the new rules?

Anyone whose real return beats inflation by a decent margin. Indexation taxes a modest gain more lightly than the discount did and a large one more heavily. With 3% inflation over ten years, the two break even at about 5.4% growth a year. Venture outcomes that work sit at the large end.

Low-income investors who timed their sales lose the most in percentage terms. A self-funded retiree with no other income who sold shares for a $200,000 gain paid roughly 11% of it in tax. The post-2027 part of that gain will be taxed at no less than 30%, unless they receive the Age Pension or another exempt payment that year.1

Companies are unaffected, since they never had the discount. Super funds keep their one-third discount (an effective 10% on long-term gains), though the new tax on super balances over $3 million, in force from 1 July 2026, takes some of that back.7 Discretionary trusts face a proposed 30% minimum tax from 1 July 2028.11,12

Shares, ETFs, property and most managed funds held in your own name all move to the new rules. Gains on eligible ESVCLP investments stay exempt.

How much more tax? A worked example

A top-rate investor (47%) puts $100,000 into an investment after 1 July 2027. Ten years later it's worth $500,000 and they sell. Inflation runs at 3% a year. The ESVCLP column assumes the same $400,000 gain after fees.

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. A startup fund carries far more risk than an ETF, which the table can't show.

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

The offset is up to 10% of the contributions you pay in an income year, and you claim it for that year. It is capped at your share of the eligible investments the fund makes in that year and the two months after, a total that includes the costs of making those investments and associated administrative expenses.4,18 So management fees only reduce your offset if they leave your share of eligible investments below what you paid in. The fund works out each partner's offset and reports it on the annual tax statement.

On a $100,000 contribution that's up to $10,000 off your tax bill. The offset is non-refundable: if you don't have enough tax payable to use it that year, the unused amount carries forward to later years. Only funds unconditionally registered on or after 7 December 2015 qualify.4 Because commitments are called over several years, the offset arrives in stages, one income year at a time.

Your share of income and gains from eligible investments the fund has held for at least 12 months is exempt, and passes through the partnership to you untaxed.14,4 If a company's assets pass $250 million ($420 million from July 2027, proposed), its growth from six months after the end of that income year becomes taxable.4,9

Exempt gains also sit outside the 30% minimum tax. 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.1,19 The proposed 30% minimum tax on discretionary trusts applies to a trust's net income, and the explanatory memorandum says amounts that aren't assessable income are outside it. That bill was introduced on 14 October 2026 and isn't law yet, so if you invest through a trust, check the final rules.20

The downsides: fees, losses and lock-up

An ESVCLP's returns reach you after fees, as with any venture fund. Typical terms are a 2% annual management fee on committed capital and 20% carried interest (the manager's share of profits), often above an 8% hurdle. The worked example assumes the gain is already net of these.

Losses on eligible investments are disregarded, so when a company fails you can't use the loss against gains elsewhere.4 In venture most investments lose money: across more than 21,000 venture financings, 65% returned less than the capital put in.21 A few large successes pay for the rest, so the exemption on the winners is usually worth more than the losses you give up. The portfolio still needs enough companies to have a fair chance of holding one of those successes.

The money is also locked up. Funds typically run 10 years or more, with capital called over the first three to five. Don't commit money you might need in that time.

The manager decides most of the result. 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.22 Ask any manager how they pick.

How has Australian venture performed?

On Side Stage Ventures and Dealroom's 2026 report, Australian venture has delivered a five-year pooled return of 24.4% net of fees, almost double its US peers. Australia also produces more decacorns (companies worth US$10 billion or more) per dollar invested than any other market.24 Those are past results for the market as a whole, and individual funds vary widely.

Entry prices are lower too. Median seed valuations run about half the US level, so the same cheque buys a larger share. And only 18 Australian funds completed five or more seed deals in the past year, against 598 in the US and 516 in Europe.24

Fund size matters as well. In Carta's data on 2018-vintage US funds, the top 10% of funds of US$1 million to US$10 million reached 4.03 times net TVPI, against 1.67 times for the top 10% of funds of US$100 million or more.25 A smaller fund needs smaller exits to return its capital. ESVCLPs are capped at $200 million ($270 million from July 2027, proposed).14,9

How to invest in an ESVCLP

1. Confirm you're eligible. Get a qualified accountant's certificate showing you meet the wholesale test. It lasts up to two years.17
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.14,4
3. Read the information memorandum. Look at fund size, stage, sectors, fees, hurdle, carry, minimum commitment and the expected capital call schedule.
4. Question the manager. Ask for realised returns (DPI, the cash actually paid back to investors) as well as paper returns (TVPI). Ask how many companies they plan to back, how much they keep for follow-on investments, and what their worst investment taught them.
5. Ask how the offset is calculated. Find out roughly what share of each capital call goes into eligible investments, so you know your real offset.
6. Plan for the capital calls. Make sure the money is there across the drawdown period, and that you'll have tax payable to absorb the offset (or are happy to carry it forward).
7. Get the structure right. Decide whether to invest in your own name or through a company, a trust or an SMSF. That's a conversation for your accountant, especially with the trust and super tax changes coming.