Treasury has outlined the details of its new capital gains discount for start-ups, with the aim of shielding genuine high-growth firms from the looming tax changes.
Treasury has released a consultation paper setting out the Innovative Business CGT Concession (IBCC) – a discount designed to preserve the existing 50 per cent CGT relief for genuine start‑ups, even as the broader regime shifts to indexation and a 30 per cent minimum tax from mid‑2027.
The paper made clear at the outset that the IBCC was intended to stop the wider CGT changes from penalising high‑risk, early‑stage ventures with very low cost bases.
“This concession ensures the tax system will continue to support high-risk innovative activity with high growth potential in circumstances where indexation would be applied to a low or zero cost base,” Treasury said.
“The proposed Innovative Business CGT Concession (IBCC) will apply broadly across sectors but will be targeted to genuine innovative activity.”
Treasury also linked the carve‑out to the wider economic benefits of innovation, saying that the new minimum‑tax framework should not deter capital from backing young companies.
The document also said that the discount would not just cover outside investors, but also founders and staff who are paid in equity.
Mechanics: Preserving a 50% discount with choice at exit
Treasury then turned to how the concession would work in practice, making it clear that eligible start‑up equity would retain the current level of CGT relief.
“The discount would operate as a targeted 50 per cent discount on nominal capital gains on early investors’ shares and options in innovative start-ups. This would maintain the existing CGT treatment for eligible shares,” the paper said.
Investors will also be able to choose whether to use the preserved discount or the new mainstream settings once they sell.
“Shareholders would have the choice to calculate their CGT liability using the 50 per cent discount without a minimum tax, or using cost base indexation and the 30 per cent minimum tax when they realise a capital gain,” Treasury said.
The paper confirmed that the IBCC was strictly prospective, saying that the “discount would be available for gains on shares issued after 30 June 2027”.
Company eligibility: Small, young, active, and innovative
The paper also set out detailed conditions that a company must satisfy to bring investors within the IBCC.
First, it narrowed the eligible instruments to fresh equity in unlisted, stand‑alone entities, saying that “eligible shares must be new equity issued after 30 June 2027, by an unlisted and independent company”.
Second, it tied access to the business being genuinely early-stage by imposing turnover and age caps.
“That is, annual turnover of less than $50 million and less than 10 years of incorporation,” the paper said.
It also set out a requirement that “eligible shares must have been issued by an active, innovative start-up” and tied the “active business” test to the existing active‑asset rules.
“The ‘active business’ requirement would align with the existing 80 per cent test for determining whether shares in a company are ‘active assets’. The test would be met if the market value of the company’s active assets and financial instruments and cash make up at least 80 per cent of the market value of all of the company’s assets,” it said.
The paper said that start‑ups “would also be required to be innovative at the time that new equity is issued, based on the following principles from the ESIC program”.
It listed conditions such as being “genuinely focused on developing one or more new or significantly improved innovations for commercialisation”, having “high growth potential,” being able “to successfully scale up”, and demonstrating “competitive advantages for that business”.
Investor conditions and the push for patient capital
On the investor side, the paper proposed a holding period and exclusions that made clear the IBCC was about long‑term, high‑risk backing from individuals.
“Eligible shares must have been held by the taxpayer for a minimum of five years,” Treasury said.
“The discount would not be available to investors that are companies, foreign residents or superannuation funds (who do not qualify for the 50 per cent CGT discount under current rules).”
Treasury also said that it was considering a lifetime cap of $10 million in gains per investor that could benefit from the IBCC.
What Treasury wants industry to address
The discussion paper asked stakeholders whether the IBCC was the right way to support investment in innovative start‑ups once the general 50 per cent discount disappeared.
It also sought the industry’s views on whether the proposed $50 million turnover ceiling and 10‑year age limit were appropriate or whether they should be tightened or relaxed.
Treasury further invited feedback on the practicality of the ESIC‑style innovation tests, the feasibility of a five‑year minimum holding period in a sector where exit timelines can be uncertain, and whether a $10 million lifetime cap on discounted gains achieved the right balance between encouraging risk capital and protecting revenue.
Submissions on the IBCC are due by 10 July 2026.
[Related: Albanese unveils sweeping CGT carve-outs]
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