MEC is registered as a Pooled Development Fund (PDF) which effectively gives shareholders the benefit of paying no capital gains tax on the sale of their shares. Investors who receive dividends will also be exempt from income tax on dividends. This can be particularly attractive to both traders and investors, since any profits derived from trades or investments are tax-free.

The Pooled Development Fund Act 1992 was established by the Federal Government to increase the supply of capital to Australian small and medium-sized enterprises to enable those businesses to grow and develop their own markets, creating industry and jobs for Australia. To incentivise investors, a concessional tax regime to encourage potential investors was established for those companies that were registered as Pooled Development Funds (PDFs).

The government offers tax benefits to both the PDF and its shareholders as follows:

  • Capital gains made by PDF shareholders are not taxable
  • Shareholders can elect to treat dividends paid by a PDF as tax free
  • PDF companies are charged a tax rate of 15%

Any capital losses on the sale of PDF’s, however, are not deductible and cannot be offset against capital gains.

This is not a complete list of the taxation issues surrounding Pooled Development Funds. For further information please contact AusIndustry.

PDF’s tend to invest in a portfolio of growing companies, thereby potentially reducing investors’ risk through diversification. Investee companies also have the possibility to become stock exchange listed companies in their own right, which then has the potential of providing investors with even more attractive returns.