Expansion of venture capital tax incentives

Article

Published: May 12, 2026

The Government will expand venture capital tax incentives to better support early-stage and growth businesses.

From 1 July 2027, the asset size caps for investee businesses under the venture capital limited partnership (VCLP) and early-stage venture capital limited partnership (ESVCLP) programs will be increased. This includes raising the VCLP cap from $250 million to $480 million and the ESVCLP cap from $50 million to $80 million. Additionally, the ESVCLP tax incentive cap for fully tax-exempt investment returns will increase from $250 million to $420 million, and the maximum fund size for ESVCLPs will rise from $200 million to $270 million.

These changes will apply to both new and existing funds and their new investments, including further investments in businesses already held. ESVCLPs must comply with their existing investment plans or seek approval for replacement plans. The eligible venture capital investor program will close to new applications from 7.30pm (AEST) on 12 May 2026.

The Department of Industry, Science and Resources (DISR) will receive $3.6 million in 2026–27 to support program growth, with funding from 2027–28 held in the Contingency Reserve pending final implementation details. Treasury and DISR will conduct a departmental impact assessment of these programs in 2032–33 to ensure they remain well-targeted and appropriate. For Treasury reporting purposes, the measure is estimated to decrease receipts by $10 million and increase payments by $14.7 million over the five years from 2025–26.

This measure forms part of the first stage of the Government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.

BDO comment

The expansion of venture capital tax incentives, together with the closure of the eligible venture capital investor program to new entrants, amounts to a quiet consolidation of Australia’s concessional venture capital framework.

In practical terms, the reforms advantage investors who can access capital through established VCLP and ESVCLP structures, while screening out some direct or first‑time participants who previously relied on individual eligibility pathways. Over time, this may reinforce the position of larger, incumbent fund managers and concentrate concessional capital within a narrower segment of the market.

By lifting asset and fund size thresholds, the Government is implicitly redefining what it considers ‘early stage’ and signalling that scale‑up activity is now central to its innovation agenda. This represents a shift from encouraging investment activity per se, toward shaping the growth trajectory of firms deemed strategically important to the economy.

For industry participants, the key question is whether this policy calibration successfully balances scale with additionality. While the expanded caps improve capital continuity and international competitiveness, they also raise the risk that concessional treatment extends further into later‑stage activity where market failure is less clear. The effectiveness of this approach will ultimately depend on whether larger, better‑funded firms continue to generate the intended innovation spill‑overs, an issue the Government has explicitly reserved for scrutiny through its planned 2032–33 review.

Subscribe to receive the latest BDO News and Insights