Government softens start-up CGT concession rules

The IBCC is intended to preserve a 50 per cent CGT discount for qualifying founders, early employees, and investors in innovative companies.

It follows warnings from start-up and venture capital groups that the government’s wider overhaul could weaken incentives to back early-stage Australian businesses.

Wider access, shorter holding period

The revised proposal would allow companies to access the IBCC for up to 15 years, rather than the 10-year limit initially floated by Treasury.

The 15-year window would apply across sectors, while companies would still need annual turnover below $50 million and must meet the scheme’s innovation requirements.

Investors would need to hold eligible equity for three years before selling, down from the original five-year requirement.

Treasury has also scrapped the proposed $10 million lifetime cap on gains that could receive the 50 per cent concession.

In announcing the draft, Chalmers said the revised framework was intended to preserve momentum in the local innovation economy.

“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,” he said.

Treasury said the uncapped approach would support simplicity and repeat investment by successful start-up backers.

The government estimates the IBCC amendments will cost revenue $160 million over the forward estimates.

Treasury will also release a draft legislative instrument intended to let existing businesses self-assess whether they satisfy the innovation criteria.

Consultation on the exposure draft is open until 28 September.

Fintech body seeks clearer rules

However, FinTech Australia said that the new settings did not overcome uncertainty around which businesses would qualify, particularly where technology and regulated financial services were closely intertwined.

“The central problem remains certainty. A tax incentive wrapped in uncertainty is not much of an incentive,” FinTech Australia CEO Rehan D’Almeida said.

“For fintechs, Treasury has largely carried across an existing technology exemption from the venture capital rules that has already proven difficult to apply in practice. The unresolved question remains where developing technology for financial services ends and providing financial services using technology begins.”

D’Almeida said fintechs should not have to wait until after funding had been secured to discover whether they were entitled to the concession.

“That matters for digital lenders, payments businesses, wealthtechs and other fintechs whose technology and regulated financial services are inseparable. They should not be left wondering whether they qualify only after investors have already committed capital,” D’Almeida said.

“You cannot ask investors to take a long-term risk on an Australian start-up while offering them a concession that can disappear halfway through the journey.”

While the government’s revisions address some of the sector’s most prominent objections, D’Almeida said uncertainty could still influence capital-raising decisions as fintechs seek funding in a challenging market.

“If this legislation proceeds in its current form, Australian fintechs will still be trying to raise capital in a difficult environment with a concession shrouded in uncertainty,” he said.

“We are already hearing concerns from fintechs that the broader CGT changes are affecting capital-raising decisions.”

[Related: Treasury makes major amendments to discretionary trust legislation]