The View from Down Under

The Significant Investor Visa (SIV) programme is Australia’s main path to residency for international investors. Investors must invest a minimum of Aus$5 million over 4 years in “approved” investments after which time they receive permanent residency. A Premium Investor Visa (“PIV”) is also available and is aimed at attracting applicants with business and entrepreneurial skills. This requires a capital investment of $15million into innovation and commercialisation of Australian ideas and research and development. The PIV programme will be available at the invitation of the Australian Government only.

The most recent review of the SIV programme in May 2015, refocused it as an initiative to spur innovation in Australia. Certainly in Australia now that the economy is in a post mining boom period the case for innovation is compelling, particularly as Australia’s current world ranking in innovation  (81st) is well below the global median.

The Government has therefore decided to put an emphasis on Venture Capital Funds for qualifying investments in the SIV programme. This is similar to programmes implemented by Canada and Singapore.

The SIV rules were changed in May 2015 so that “approved” investments were limited to: eligible managed funds or Listed Investment Companies (“LIC”) that invest in emerging companies; eligible Australian Venture Capital or growth Private Equity Funds; LIC’s that invest in eligible assets that include other ASX listed companies, eligible corporate bonds or notes, annuities and real property in Australia (subject to a 10% limit on residential real estate). There is no requirement that these small-cap firms are involved in innovation.

Many commentators fear that the Australian Government has made the SIV programme less competitive internationally by keeping the required investment at AUD$5million and restricting the classes of investment. The required investment is relatively high in comparison to other international schemes.

There are also criticisms around structural issues with the SIV as a means of improving or encouraging innovation. The required investment period of 4 years does not typically suit Venture Capital Funds where at least 8 to 10 years are generally required to allow for investigation and selection of suitable investments, growth of the investment funds and development and execution of a suitable exit strategy. A relatively short 4 year investment period is more attractive to the provision of convertible bond or mezzanine debt financing rather equity capital. This is likely to restrict access to the funds as most start-up companies do not have the cash flow or activities that can support debt funding.

Transparency is another problem for the scheme as currently designed. It is often difficult for potential investors to select funds because fund performance and investment valuations are frequently considered confidential data. Generally only limited aggregated performance data is publicly available. Singapore overcomes this by using independent 3rd parties to evaluate eligible funds for the investing public

The industry also had a concern that typically cautious Chinese investors (who have formed the majority of Australia’s SIV applicants) prefer safer asset classes, especially property. The low number of applications under these new rules seem to give some credence to this and there seems to be increasing interest in looking at alternative visa options such as business visas or the Investor stream visa.

Author: Tony Underhill, Chartered Tax Adviser and Registered Tax Agent

www.underhillcta.com.au