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There are also requirements placed on the taxpayer. The taxpayer would need
to hold the venture capital shares in the VCC for a minimum of five years to
qualify for the deduction. In the event that the venture capital shares in the
VCC are sold prematurely, the proceeds from the sale would be classified as
a recoupment in the taxable income of the taxpayer and increase the tax
exposure of the taxpayer.

In addition to the above, the investment of the taxpayer is subject to an anti-
avoidance provision contained in section 12J(3A) of the Act, which determines
that in order to deduct the investment from the taxable income of the taxpayer,
the investments in the VCC must be genuinely ‘at risk’. In other words, the
investment must be vulnerable to the normal profit and loss model of the VCC Commercial
and not due to some form of credit or debt which is converted into equity.
But if these conditions can be met, the VCC can quite correctly provide
substantial tax benefits in addition to providing a potential good return on
investment based on the performance of the underlying companies. Taking
account of the tax benefits, the risk of investment can weigh in favour of
considering the VCC as a viable investment vehicle for an investor looking to
invest.
The application of section 12J of the Act will come to an end on 30 June 2021,
when the provision will be reviewed and a decision made as to whether its
benefits will be extended for a longer period. For now, the opportunity afforded
for investors by section 12J is there and our advice is to consult your financial
or commercial advisor to discuss the option of the VCC for your investment
portfolio should you be interested in exploring the VCC model.

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