Treasury floats innovative businesses CGT concession draft laws

Treasury has released draft legislation on a capital gains tax (CGT) concession for start-ups and small businesses, embedding several amendments that have been lauded as a "substantial win" by an industry body.

From 1 July 2027, the bill introduces a 50% CGT discount for investors who back eligible innovative Australian start-up companies.

For an entity to be eligible to apply the CGT discount on an Innovative Business CGT Concession (IBCC) asset, the entity must have chosen to apply the discount rather than cost-base indexation. The entity must also not be a company, complying superannuation entity or foreign resident, as these entities have different CGT arrangements.

The new law defines an IBCC company as one that develops a "genuinely innovative product, process service or method," is incorporated for less than 15 years, based in Australia and is not controlled by another company that has been incorporated for 15 or more years.

It must not be listed and must have annual turnover below $50 million.

The Tech Council of Australia (TCA) said the most significant change is the removal of the lifetime cap. "TCA has strongly advocated for changes to the cap limit so that founders remain properly incentivised to take on the risk of starting high-growth tech companies.

"Employees will also have stronger incentives to join tech startups in their early years. Investors are now incentivised to back more early-stage tech startups and will retain concessional treatment across multiple investments," TCA said.

In June, Treasurer Jim Chalmers proposed a $10 million turnover threshold for small businesses to qualify for the 50% active asset CGT reduction, up from $2 million.

"Key changes to the IBCC, particularly the removal of the lifetime cap, will make founding, working for and investing in early-stage startups more attractive in Australia. The risk of building and backing these companies has been acknowledged and will be rewarded," BCA said.

"While this is a substantial win, we recognise that the retention of the $50 million revenue cap will exclude many late-stage companies, and the investors who back them, from concessions for new investments."

The reforms sit under the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Innovative Business CGT Concession. It includes details about the better targeting the R&D Tax Incentive from 1 July 2028.

Treasury estimates that every dollar of tax offset generates about 20% more business R&D and will increase R&D by young firms by $400 million per year.

"These reforms will support the continued growth of Australia's start-up and venture capital ecosystem which is good for innovation, good for productivity and good for the economy," Treasurer Chalmers said.

"They mean early investors in innovative start-ups that begin with a low or zero cost base still receive a significant discount on a future capital gain."

Treasury will also release a draft legislative instrument to help existing companies to self-assess whether they satisfy the innovation requirements to qualify as an innovative start-up.

It is also about supporting small businesses and start-ups, including in the biotechnology and medical technology sectors, Chalmers said, noting that these reforms will deliver more innovation, encourage more entrepreneurship and deliver certainty for investors.

The consultation period ends on September 28.