Investor briefing for eligible Australian wholesale investors, US accredited 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. For a fund that obtains unconditional ESVCLP registration and remains compliant, the structure may become relatively more attractive as restructured capital looks 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. If enacted and applicable, the higher asset thresholds may make more late-stage Australian companies eligible for investment by unconditionally registered and compliant ESVCLPs and VCLPs, potentially allowing funds to 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. An ESVCLP may offer a tax-effective LP outcome only after unconditional registration and while continuing compliance is maintained.
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
For an unconditionally registered and compliant ESVCLP, eligible Australian investors may qualify for tax concessions on income and capital from eligible investments, plus a 10 per cent non-refundable carry-forward tax offset on eligible contributions. Availability depends on continuing compliance and each investor's circumstances.
Any ESVCLP-related treatment of CGT, trust tax, or indexation depends on unconditional registration, continuing compliance, eligible investments, the investor's circumstances, and applicable law.
The ESVCLP framework has not changed. The environment around it has. If unconditional registration is obtained and continuing compliance is maintained, the structure may be tax-effective for eligible Australian private capital.
Capital previously deployed into negatively-geared property, trust-held passive portfolios, or direct equity for the CGT discount may seek alternatives. Any relative tax advantage of an ESVCLP remains conditional on unconditional registration, continuing compliance, investor eligibility, and applicable law.
Where MAD Fund 1 sits
MAD Fund 1 is intended to be registered as an Early Stage Venture Capital Limited Partnership (ESVCLP); registration is currently conditional and the tax concessions described depend on unconditional registration and continuing compliance.
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. Any ESVCLP concessions still depend on unconditional registration and continuing compliance. 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 an Australian-domiciled vehicle for productive capital. Its intended ESVCLP tax treatment is conditional on unconditional registration and continuing compliance. We did not design it around this budget, but the budget made the intended structure relevant.
For LPs who have been weighing direct property investment, trust restructuring, or offshore migration, an ESVCLP route may warrant consideration. Any tax efficiency for family offices and high-net-worth investors depends on unconditional registration, continuing compliance, investor circumstances, and applicable law.
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 ESVCLP was designed to channel Australian capital into early-stage ventures. Its relative attraction may have changed without a change to its rules, but all concessions depend on unconditional registration and continuing compliance. 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. Eligible Australian wholesale investors, US accredited 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.
Information for eligible Australian wholesale clients and US accredited investors only. 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 person. It does not constitute an offer of securities or an invitation to subscribe. MAD Fund 1 is offered privately and only to wholesale clients as defined under sections 761G and 708(8) of the Corporations Act 2001 (Cth), and to eligible US accredited investors under applicable US law, under separate offer documentation. MAD Fund 1 is intended to be registered as an Early Stage Venture Capital Limited Partnership (ESVCLP); registration is currently conditional and the tax concessions described depend on unconditional registration and continuing compliance. Past performance is not a reliable indicator of future performance and capital is at risk. Legislation may change. 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 eligible investors via the Investor Room.