Industry groups have said the federal government’s new tax carve-out for innovative businesses could miss its mark without major changes.
Fintech and start-up peak bodies are urging Treasury to overhaul the Innovative Business CGT Concession (IBCC), saying that the proposed carve‑out for founders, employees, and early investors is so tightly drawn that it risks weakening the start-up industry.
The IBCC is part of the government’s change to how capital gains will be taxed from 1 July 2027, with the flat discount due to be replaced with cost‑base indexation and a 30 per cent minimum tax on gains.
The concession is intended to ensure those backing genuinely high‑risk, high‑growth ventures are not treated the same as investors in more traditional assets.
Treasury’s consultation paper on the IBCC, released on 18 June, said that companies would need to remain under a turnover ceiling, pass an innovation test, satisfy independence rules, and fit within an age limit, while individuals would face a minimum holding period and a $10 million lifetime cap on gains covered by the concession.
FinTech Australia says rules must be predictable, not a guessing game
FinTech Australia’s submission backed the idea of protecting entrepreneurial risk, yet further outlined how the draft rules could undermine that ambition.
Its first concern is that founders, employees, and investors would not know where they stand until long after decisions are made.
To prevent Australians from betting capital on uncertain tax outcomes, the organisation said that the regime needed to be built around clear, upfront tests.
“The IBCC should be designed so that eligibility can, wherever possible, be determined prospectively at the time an investment or employment decision is made,” the paper said.
FinTech Australia also said that vague qualitative criteria would invite case‑by‑case judgement and ongoing reassessment that is at odds with how start‑ups plan capital and hiring.
It therefore urged Treasury to treat innovation as a definable feature of target businesses.
“Treasury should simplify the proposed qualitative innovation criteria to reduce subjectivity and improve certainty,” Fintech Australia said.
Even with more objective rules, the submission expects uncertain situations.
To avoid leaving confusion, the body called for a formal, binding pre‑clearance process.
“Where material uncertainty remains after applying the legislative eligibility criteria, Treasury should establish an upfront eligibility determination mechanism that provides founders, employees and investors with binding certainty before shares are issued,” the paper said.
“Any determination should remain effective for the relevant share issue, rather than requiring repeated reassessment for subsequent funding rounds or simply because time has passed.”
Employee equity, venture structures, and sector realities
FinTech Australia also said that, if the IBCC was bolted rigidly onto existing venture capital limited partnership (VCLP) and early‑stage VCLP rules, regulated sectors such as financial technology could fall through the cracks.
To prevent that outcome, the submission urges that “Treasury should review the proposed reliance on the existing VCLP and ESVCLP exclusions to ensure innovative financial technology businesses are not inadvertently excluded from the concession because they operate within a regulated industry”.
On every day corporate activity, the submission said that the concession needed to work with standard structures and transactions.
“The detailed design of the IBCC should appropriately accommodate employee share schemes, existing eligible holding structures and genuine commercial transactions, including acquisitions and corporate restructures, so that ordinary commercial activity does not inadvertently deny access to the concession,” the paper said.
Caps and thresholds: Ambition v eligibility
A significant theme of the submission is that the draft IBCC seemed to favour small businesses over ambitious scale‑ups.
One focal point is the proposed $10 million lifetime cap on gains covered by the concession.
FinTech Australia said this would penalise founders and early investors who reinvested and built multiple ventures over time.
It said that “rather than limiting access through a $10 million lifetime cap, Treasury should consider a reinvestment-based capital gains tax deferral mechanism modelled on the United Kingdom’s approach. If Treasury nevertheless retains a cap on earnings, it should instead be based on the amount of capital invested (or another investment-based metric) rather than aggregate realised lifetime gains”.
The turnover threshold attracted similar criticism, with Fintech Australia saying that many businesses could cross relatively modest revenue lines well before they become mature.
The submission said that a low cap would shut them out just as they reached scale, recommending both lifting and indexing the threshold.
“Treasury should reconsider the proposed annual turnover threshold to ensure it reflects the commercial realities of innovative growth businesses, particularly those operating in regulated sectors, and index the threshold over time to preserve its policy intent,” Fintech Australia said.
“Increasing the proposed turnover threshold to $75 million would more appropriately capture the full suite of innovative start-up businesses which are deserving of support through the IBCC.”
It also said that commercialisation could run well beyond a decade and that the proposed 10‑year age limit risked slicing out businesses that had steadily built towards market readiness.
“Treasury should extend the proposed 10-year incorporation limit to better reflect the commercialisation time frames of innovative businesses,” the paper said.
“If an age-based criterion is retained, it should be extended beyond 10 years or replaced with a more appropriate objective measure of business maturity.”
To ensure the regime remained relevant over time, the submission urged that all key monetary settings be adjusted periodically.
“All monetary thresholds under the IBCC should be indexed periodically to preserve their real value and avoid the need for repeated legislative amendment as inflation erodes their effectiveness,” the body said.
Peak bodies call for a broader rethink
On 10 July, the final day of consultation, the Tech Council of Australia, FinTech Australia, Aussie Angels, AusBiotech, EnergyLab, Startmate, and six other peak bodies sent a joint letter to Treasurer Jim Chalmers, signalling sector‑wide concern about the IBCC.
“Australia’s technology industries call on the Government to set the concession for qualifying innovative businesses so it is genuinely competitive with leading innovation economies,” the letter said.
The letter went on to warn that the current design could backfire, saying that “in our collective view the concession must be significantly broadened if it is to achieve its objective”.
“We are concerned it would steer capital away from the start-up ecosystem, exclude some of the country’s most significant high-growth companies, and widen rather than close the gap with the jurisdictions Australia competes with for capital and talent,” it said.
“It would also treat founders, investors and employees unevenly, and add compliance cost to the smallest and newest start-ups.”
[Related: Details of new CGT discount for start-ups revealed]
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