What's happening: Treasury has released updated draft legislation for the Innovative Business CGT Concession, easing several contested limits after startup sector backlash, alongside R&D tax incentive reforms and more flexible PAYG reporting. Public consultation is open until 28 September 2026.
There's still time for small business owners and startup founders to share their thoughts on a new set of tax changes. The good news is that the latest version of the proposal has eased up on some of the stricter rules that were initially suggested by the Treasury.
What softened, and why
The centrepiece is the Innovative Business CGT Concession, a carve-out designed to shield startup founders, early employees and investors from the government's wider capital gains tax overhaul. That broader overhaul, already legislated, replaces the standard 50% CGT discount with cost-base indexation and a 30% minimum tax on gains from 1 July 2027, and it unsettled the startup sector when first announced in May's Budget, with founders and investors warning it risked pushing talent and capital offshore.
The exposure draft released last Friday responds to a lot of that pushback. Investors now only need to hold their shares for three years to get the concession, down from the five years originally proposed. A $10 million lifetime cap on eligible gains has been scrapped entirely. And the window for a company to still count as an eligible startup has stretched from 10 years to 15, across every sector rather than just long-development industries like biotech. The $50 million turnover threshold hasn't moved.
The timing problem nobody's fixed
Not everyone thinks the fine print is sorted. Tax lawyers and industry commentators have pointed to the innovation test that decides whether a company qualifies, which gets assessed at the point shares are issued. For most founders, that's the moment of incorporation, before the business has done much at all, leaving open questions about how a brand new company demonstrates it meets criteria like high growth potential or a genuinely scalable, competitive product. Professional bodies including CPA Australia have separately warned the concession's design is more complicated than it needs to be and may still fall short of properly supporting innovation.
R&D incentive overhaul
The changes reach beyond CGT. From July 2028, the R&D Tax Incentive is being reworked, lifting the core R&D offset by around 50%, lowering the threshold for the non-refundable offset to 1.5%, and raising the spending cap that qualifies for it to $200 million. Refundable offsets will generally be limited to businesses under 10 years old, though biotech and medtech firms get a longer 15 year runway in recognition of how much longer their products take to reach market.
Rounding out the package are expanded venture capital tax incentives from mid-2027, updated Fringe Benefits Tax settings for electric vehicles, and the option for businesses to report and pay PAYG instalments monthly instead of quarterly, intended to better match tax payments to real-time cash flow.
Submissions on the exposure draft are open now through the Treasury consult hub and close 28 September 2026.