"venture capital management partnership" has the meaning given by subsection 94D(3).

8 Subsection 6(1) (paragraph (b) of the definition of year of income)

Repeal the paragraph, substitute:

(b)

in relation to any other person:

(i)

the financial year for which income tax is levied; or

(ii)

if an accounting period is adopted under this Act in lieu of that financial year and subparagraph (iii) does not apply—that accounting period; or

(iii)

an accounting period that commences or ends under section 18A, if that accounting period would (but for that section) have formed part of the financial year referred to in subparagraph (i) or the accounting period referred to in subparagraph (ii).

9 Subsection 6(2)

Omit "a reference to that accounting period", substitute:

a reference to:

(a)

the adopted accounting period; or

(b)

if the adopted accounting period ends under section 18A:

(i)

in relation to the commencing of the year of income—the adopted accounting period (as ending under that section); or

(ii)

in relation to the ending of the year of income—the accounting period ending under that section on the day on which the adopted accounting period would (but for that section) have ended.

10 After subsection 6(2)

Insert:

(2AA)

A reference in this Act (other than subsection (2) of this section) to an accounting period adopted in lieu of a year of income includes a reference to an accounting period:

(a)

that commences or ends under section 18A; and

(b)

that would, but for that section, form part of an accounting period so adopted.

(2AB)

The Commissioner may make a determination modifying the operation of one or more provisions of this Act in relation to limited partnerships whose accounting periods commence or end under section 18A of the Income Tax Assessment Act 1936 .

(2AC)

A determination can only be made under subsection (2AB) in order to take account of the fact that such accounting periods are of less than 12 months' duration.

(2AD)

A determination under subsection (2AB) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .

11 Subsection 18(1)

Omit "unless with the leave of the Commissioner some other date is adopted", substitute:

unless:

(a)

with the leave of the Commissioner some other date is adopted; or

(b)

the accounting period ends earlier under section 18A.

12 After section 18

Insert:

18A Accounting periods for VCLPs, AFOFs and VCMPs

(1)

If a partnership becomes, or ceases to be, a VCLP, an AFOF or a VCMP on a particular day:

(a)

the accounting period during which that day occurs (the first accounting period ) is taken to have ended immediately before that day; and

(b)

another accounting period is taken to have commenced at the beginning of that day.

The other accounting period ends on the day on which the first accounting period would have ended if this section did not apply.

Example: A partnership whose accounting periods ended on 30 June becomes a VCLP on 1 October 2002, and ceases to be a VCLP on 1 April 2003.

The effect of becoming a VCLP: the accounting period that commenced on 1 July 2002 is taken under this section to end on 30 September 2002, and a second accounting period commences on 1 October 2002. The second accounting period is scheduled to end on 30 June 2003.

The effect of ceasing to be a VCLP: the second accounting period is now taken under this section to end on 31 March 2003, and a third accounting period commences on 1 April 2003. The third accounting period is to end on 30 June 2003.

(2)

This section does not apply in relation to a partnership becoming, or ceasing to be, a VCLP, an AFOF or a VCMP on the day on which an accounting period commences.

13 After subsection 92(2)

Insert:

(2AA)

However, if:

(a)

the partner is a limited partner in a partnership; and

(b)

the partnership is a VCLP, an AFOF or a VCMP during the year of income;

the amount allowable under subsection (2), in respect of the year of income, as a deduction must not exceed the amount worked out as follows:

Method statement

Step 1. Work out the sum of the amounts that the partner has contributed (the partner's contribution ) to the partnership.
Step 2. Subtract the sum of all the amounts (if any) of the partner's contribution that are repaid to the partner.
Step 3. Subtract the sum of all deductions allowed to the partner for losses of the partnership in previous years of income.
Step 4. Subtract the sum of the amounts of all the debt interests issued by the partner to the extent that they are secured by the partner's interest in the partnership.

Example: A limited partner contributes $100,000 to a VCLP, having borrowed $80,000. Because the lender values the partner's interest in the partnership at $70,000, the partner also provides, as additional security, other assets valued at $10,000.

If none of the partner's contribution has been repaid and the partner has not been allowed deductions for partnership losses in previous years of income, the amount allowable to the partner for a partnership loss cannot exceed $30,000.

14 After section 92

Insert:

92A Deductions in respect of outstanding subsection 92(2AA) amounts

(1)

If:

(a)

the partner is a limited partner in a partnership; and

(b)

the partnership is a VCLP, an AFOF or a VCMP during the year of income; and

(c)

the amount allowable under subsection 92(2) as a deduction to the partner for partnership losses incurred by the partnership in the year of income is not reduced because of subsection 92(2AA); and

(d)

the partner has an outstanding subsection 92(2AA) amount for the year of income;

there is allowable as a deduction to the partnership an amount worked out as follows:

Method statement

Step 1. Subtract the amount allowable under subsection 92(2) as a deduction to the partner for partnership losses incurred by the partnership in the year of income from the amount worked out using the method statement in subsection 92(2AA).
Step 2. If the amount worked out under step 1 is greater than or equal to the outstanding subsection 92(2AA) amount for the year of income, the amount of the deduction allowable under this section is the outstanding subsection 92(2AA) amount.
Step 3. If the amount worked out under step 1 is less than the outstanding subsection 92(2AA) amount for the year of income, the amount of the deduction allowable under this section is the amount worked out under step 1.

(2)

The partner has an outstanding subsection 92(2AA) amount for a year of income if:

(a)

an amount allowable under subsection 92(2) as a deduction to the partner for partnership losses incurred by the partnership in a previous year of income was reduced because of subsection 92(2AA); and

(b)

the difference between:

(i)

the sum of all reductions made under subsection 92(2AA) to amounts allowable under subsection 92(2) as deductions to the partner for partnership losses incurred by the partnership in previous years of income; and

(ii)

the sum of all amounts allowable under this section, in respect of previous years of income, as deductions to the partner in relation to those reductions;

is greater than zero.

The amount of that difference is the partner's outstanding subsection 92(2AA) amount for the year of income.

(3)

To avoid doubt, a partner's outstanding subsection 92(2AA) amount for a year of income cannot form part of a tax loss for the purposes of Division 36 of the Income Tax Assessment Act 1997 .

15 Section 94B (definition of limited partnership)

Repeal the definition.

16 At the end of section 94D

Add:

(2)

However, a partnership that is a VCLP, an AFOF or a venture capital management partnership cannot be a corporate limited partnership.

Note 1: This subsection can apply without the partnership meeting the applicable registration requirements under the Venture Capital Act 2002 . It must be registered under that Act in order to be a VCLP or an AFOF, but it is possible for it to remain registered while the requirements are not met.

Note 2: VCLPs, AFOFs and VCMPs are taxed as ordinary partnerships under Division 5.

Note 3: If the partnership's registration as a VCLP or AFOF is unconditional, some partners' share in capital gains and losses from CGT events relating to some investments may be disregarded: see Subdivision 118-F of the Income Tax Assessment Act 1997 .

(3)

A venture capital management partnership is a limited partnership that:

(a)

is a general partner of either or both of the following:

(i)

one or more VCLPs;

(ii)

one or more AFOFs; and

(b)

only carries on activities that are related to being such a general partner.

A limited partnership ceases to be a venture capital management partnership if it ceases to meet the requirements of paragraphs (a) and (b).

Note: In this Act, the term "venture capital management partnership" is usually abbreviated to "VCMP".

17 Paragraph 160APH(1)(a)

After "different accounting period", insert ", or has an accounting period that commences or ends under section 18A".

Income Tax Assessment Act 1997

18 Paragraph 4-10(2)(b)

Repeal the paragraph, substitute:

(b)

if you have an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year.

19 Subsection 4-10(2) (note)

Repeal the note, substitute:

Note 1: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936 .

Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936 .

20 Paragraph 9-5(2)(b)

Repeal the paragraph, substitute:

(b)

if an entity has an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year.

21 Subsection 9-5(2) (note)

Repeal the note, substitute:

Note 1: The Commissioner can allow an entity to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936 .

Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936 .

22 Section 36-25 (after the table headed "Tax losses of pooled development funds (PDFs)")

Insert:

Tax losses of VCLPs, AFOFs and VCMPs

23 At the end of Division 195

Add:

Guide to Subdivision 195-B
195-60 What this Subdivision is about

This Subdivision contains rules about the income tax treatment of limited partnerships that become, or cease to be, venture capital limited partnerships, Australian venture capital funds of funds or venture capital management partnerships.
It also allows the Commissioner to determine how to take account of limited partnerships having income years of less than 12 months when they become, or cease to be, venture capital limited partnerships, Australian venture capital funds of funds or venture capital management partnerships.

Table of sections

Operative provisions

195-65 Tax losses cannot be transferred to a VCLP, an AFOF or a VCMP
195-70 Previous tax losses can be deducted after ceasing to be a VCLP, an AFOF or a VCMP
195-75 Determinations to take account of income years of less than 12 months

[This is the end of the Guide.]

Operative provisions
195-65 Tax losses cannot be transferred to a VCLP, an AFOF or a VCMP

A ^* limited partnership's ^* tax loss for a ^* loss year cannot be deducted in a later income year during which the partnership is a ^* VCLP, an ^* AFOF or a ^* VCMP.

195-70 Previous tax losses can be deducted after ceasing to be a VCLP, an AFOF or a VCMP

This Subdivision does not prevent a ^* limited partnership that has ceased to be a ^* VCLP, an ^* AFOF or a ^* VCMP from deducting, in an income year, a ^* tax loss for a ^* loss year that occurred before the partnership was a VCLP, AFOF or VCMP.

195-75 Determinations to take account of income years of less than 12 months

(1)

The Commissioner may make a determination modifying the operation of one or more provisions of this Act in relation to limited partnerships whose accounting periods commence or end under section 18A of the Income Tax Assessment Act 1936 .

(2)

A determination can only be made in order to take account of the fact that such accounting periods are of less than 12 months' duration.

(3)

A determination under this section is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .

24 Subsection 995-1(1) (definition of income year)

Omit "includes that accounting period", substitute:

includes:

(a)

the adopted accounting period; or

(b)

if the adopted accounting period ends under section 18A of the Income Tax Assessment Act 1936 :

(i)

in relation to the commencing of the income year—the adopted accounting period (as ending under that section); or

(ii)

in relation to the ending of the income year—the accounting period ending under that section on the day on which the adopted accounting period would (but for that section) have ended.

25 Subsection 995-1(1) (note at the end of the definition of income year)

Repeal the note, substitute:

Note 1: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936 .

Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936 .

26 Subsection 995-1(1) (definition of limited partnership)

Omit "section 94B", substitute "subsection 6(1)".

27 Subsection 995-1(1)

Insert: