Investor briefing for wholesale investors and family offices. Version 1.1, 13 May 2026.
At a glance
Three tax settings that matter for private capital are changing. From 1 July 2027: the 50 per cent CGT discount is replaced by indexation plus a 30 per cent minimum rate, and negative gearing is restricted to new builds. From 1 July 2028: a 30 per cent minimum tax on discretionary trusts at the trustee level.
Background
Last night's federal budget rearranged the tax framework for Australian capital in ways that will take years to fully digest. The 50 per cent capital gains tax discount is gone from 1 July 2027, replaced by cost-base indexation and a 30 per cent minimum rate. Negative gearing on residential property is restricted to new builds from the same date. Discretionary trusts face a 30 per cent minimum tax at the trustee level from 1 July 2028. Foreign investors remain locked out of established homes until mid-2029.
The headlines have focused on property. The more interesting story for private capital sits one layer below that.
What the budget actually does is shift the relative attractiveness of where Australian investors put productive capital. Property and trust-held wealth become more friction-heavy. Direct equity investing loses its long-hold tax advantage. And the one structure the government has actively reinforced, the early stage venture capital limited partnership, becomes structurally more attractive at exactly the moment a wave of restructured capital starts looking for a home.
This is a brief on what that means for VC investors, and where MAD sits in it.
The positives for venture capital
Five measures in the budget make Australian venture capital more attractive on a net basis.
Expanded VC asset caps from 2027-28. The asset thresholds governing eligible investee companies are being raised. More late-stage Australian companies become eligible for ESVCLP and VCLP investment, which means funds can hold positions longer through the growth curve before forced exits.
Permanent $20,000 instant asset write-off. Portfolio companies with under $10 million in turnover get a permanent cash-flow benefit on capex. For real-economy operators building physical capacity, this matters more than for software-led businesses.
Reintroduced loss carry-back for companies up to $1 billion turnover. From 2026-27, companies making a loss in the current year can claim a refund against tax paid in the prior two years. Useful for portfolio companies running through a build-cycle quarter and useful for fund reserve and follow-on planning.
Loss refundability for start-ups from 2028-29. Capped at FBT plus PAYG withholding, the measure targets the post-Series-A phase rather than the validation phase, but for portfolio companies that have already hit payroll it materially reduces cash burn over the next two operating years.
R&D Tax Incentive reform from 2028-29. The core experimental R&D offset rises from 25 to 50 per cent, and the refundable offset turnover threshold lifts to $50 million for firms under ten years old. Stronger for young innovation-intensive portfolio companies, tighter and non-refundable for older firms above $50 million.
These five measures together signal that the government wants productive capital moving into Australian operating businesses. The ESVCLP wrapper is one of the few vehicles that converts that intent into a tax-effective LP outcome.
The unintended consequences
The same budget produces friction for the VC sector that the headlines have not picked up.
The CGT discount removal cuts directly into direct-investment after-tax returns. For an angel or family office writing cheques on balance sheet, the after-tax return on a successful exit drops measurably from 1 July 2027. Indexation helps in high-inflation periods but the 30 per cent minimum is the binding floor for most successful outcomes. This is the most consequential and least-discussed VC implication of the budget.
Founder exit timing compresses into the next 14 months. Strategic acquirers know this. Founders running quiet processes in 2026 will face buyers who understand the calendar is against the seller. Valuations on exits booked in 2027 may be softer than 2026 marks on the same company.
R&D incentive uncertainty for two and a half years. Innovation-intensive portfolio companies will defer some R&D investment or pull it forward into the safe window. Cash flow planning across the portfolio gets harder until the new rules land.
Capital flight risk inside the LP base. High-net-worth families restructuring around the trust reform will look at offshore alternatives. Australian-domiciled VC funds need to demonstrate, in pre-tax and post-tax terms, why staying onshore is the better outcome.
Labour market crowd-out from defence and housing build-out. The $53 billion defence commitment over ten years and the housing infrastructure spend compete for the same engineering and skilled-trades talent that portfolio companies in industrial tech, advanced manufacturing, energy, and infrastructure need. Wage pressure across these segments rises through 2027.
The growth-stock penalty in listed markets. Investor preferences will tilt toward dividend-paying mature companies, which sits against the venture thesis on the public-market exit side. Listed market capital becomes harder to attract into growth companies, which affects exit valuations at IPO.
The structural point most LPs have not yet processed
The ESVCLP wrapper provides Australian investors with tax-free returns on income and capital from eligible investments held inside the fund structure, plus a 10 per cent non-refundable carry-forward tax offset on contributions.
The 50 per cent CGT discount removal does not apply to ESVCLP returns. The 30 per cent minimum trust tax does not apply to the ESVCLP wrapper. The indexation regime that now constrains direct equity investors is irrelevant inside the structure.
The ESVCLP framework has not changed. The environment around it has. In a tax framework where the headline discounts on direct investing are being narrowed, and where trust structures face a mass restructure cycle, the ESVCLP wrapper is now one of the cleanest tax-effective vehicles available to Australian private capital.
Capital previously deployed into negatively-geared property, into trust-held passive portfolios, or into direct equity for the CGT discount, now has weaker reasons to stay in those structures and stronger reasons to find tax-advantaged alternatives. The ESVCLP is one of the few that survives the budget on improved relative terms.
Where MAD Fund 1 sits
MAD Fund 1 (formerly MAD Hyperscalers Fund 1, L.P. (ILP2300027)) is an ESVCLP. Investors in the fund receive tax-free returns on capital and distributions from eligible investments held inside the structure, plus the contribution tax offset.
Our thesis is contrarian by design. Real companies making real things. Not software. Not apps. We invest in operators building productive capacity in the Australian economy, in segments where the demand curve is structural and the supply chain is constrained.
The 2026-27 budget did not change the ESVCLP framework, but it changed almost everything around it. Property as a tax-effective asset class is being repriced. Trusts as wealth structures are being reorganised. Direct equity is losing its long-hold tax shelter.
MAD Fund 1 is a tax-advantaged Australian-domiciled vehicle for productive capital, at the moment Australian capital is looking for somewhere to go. We did not design it around this budget, but the budget made the structure relevant.
For LPs who have been weighing direct property investment, trust restructuring, or offshore migration, the ESVCLP route deserves a serious second look. For family offices and high-net-worth investors with capital coming out of pre-July 2027 CGT events, the structure provides a tax-efficient channel back into the real economy.
The quiet story
The 2026-27 budget repriced Australian private capital. Negative gearing will get the headlines. The trust reform will produce the longest tail of restructuring. The CGT change will reshape direct investment behaviour.
The quiet story is that the ESVCLP, designed in 2007 to channel Australian capital into early-stage ventures, has just become more attractive without any change to its rules. For investors paying attention, that signal is worth more than the headlines.
We are open to conversations with LPs and family offices thinking through what the budget means for capital allocation over the next 24 months.
Mark Falzon and Mac Christopherson are the co-founders of MAD Ventures and the general partners of MAD Fund 1. Wholesale investors, family offices, and their advisors are welcome to enter the Investor Room for the Information Memorandum and Partnership Deed, or use the contact form for a private conversation.
This paper is general commentary on the 2026-27 Australian federal budget. It is not personal tax, financial, or investment advice and does not take into account the objectives, financial situation, or needs of any particular person. Past performance is not a reliable indicator of future performance. MAD Fund 1 (formerly MAD Hyperscalers Fund 1, L.P. (ILP2300027)) is available to wholesale investors as defined in section 761G of the Corporations Act 2001 (Cth). Information for wholesale clients only. MAD Management Pty Ltd ACN 669 182 263 is a corporate authorised representative of One Wholesale Fund Services Ltd ACN 159 624 585 (AFSL 426503; CAR No. 001307322). Tax positions referenced are based on the General Partner's and Fund Manager's understanding of the ESVCLP regime under the Venture Capital Act 2002 (Cth), the Income Tax Assessment Act 1997 (Cth), and the 2026-27 federal budget measures at the date of publication; legislation may change. Reference: business.gov.au/grants-and-programs/early-stage-venture-capital-limited-partnerships. Prospective investors should obtain their own independent financial, legal and tax advice before making any investment decision. Nothing on this page should be relied on as a substitute for the Information Memorandum and Partnership Deed, available on request to wholesale clients via the Investor Room.