I’m not sold and neither should startups. At first glance, it looks like the government listened as they’re keeping the 50% CGT discount for startups.
They’ve proposed the Innovative Business CGT Concession (IBCC) to preserve the 50% discount for “qualifying” startups. But the addition introduces new rules and you only keep the discount if you first run a tight qualifying gauntlet of innovation tests, holding periods and dollar thresholds.
This means more red tape, new caps and a five-year chokehold that will change behaviour in ways no one briefed Canberra on.
We work with founders every day. I see how decisions about hiring, offers and fundraising get made in real time.
Tell a founder they must hold shares for five years or lose the concession and you quietly penalise the very patterns that make the ecosystem work: early hires accepting low pay for upside, angels taking early risk, secondaries providing partial liquidity so people can keep backing the dream.
Contrary to the many voices who’ve cried vanity play, partial liquidity is risk management.
Angels and early employees often want to de-risk a long bet with a small secondary in a later round. That partial exit recycles capital back into the system. It helps the next founder hire and the next angel write a cheque.
Force a hard five-year wall between effort and reward and you make equity a less attractive currency for talent and capital. You push people toward short-term paperwork or contrived structures that look tidy on the tax form but hollow out companies in practice.
Investors coming into later stage rounds, or companies that exit before the five-year mark, can say goodbye to their CGT concession.
Directionally, I get the intent. But “keep what you had, plus red tape, minus liquidity” isn’t the support story it’s being sold as.
Read the fine print. There’s a $10 million lifetime cap on gains that can get the discount.
Today there is no cap. For a genuine exit, that’s the difference between halving the whole gain and halving only the first $10 million of it.
Tell a founder they can only get meaningful relief on $10 million and you’ve signalled you’re not serious about scaling truly big outcomes.
Then there’s the test. The IBCC proposal borrows ESIC-style “innovation principles” and a points-based approach. Industry feedback has been unanimous: the principles are vague and judgment-heavy, the 100-point test is milestone-heavy, and the private ruling process is costly and slow.
And the ESIC eligibility gate brings hard cut-offs with it: breach $200,000 in assessable income in the prior income year, or $1 million in expenses, and you’re out.
No matter how innovative the company is. ESIC taught us that subjective, time-sensitive compliance rules don’t suit the rapid, iterative reality of early-stage startups.
We are at real risk of repeating ESIC’s worst mistakes by grafting the same model onto CGT.
The devil is in timing. Combine the subjective gate with a five-year holding period and a $10 million cap and you’ve built a system that favours the well-advised and well-funded… even more than it currently does!
Larger funds and firms with legal teams will navigate the maze for their companies; small teams and angels will hesitate. That’s the opposite of what a policy meant to spur broad-based innovation should do.
It’s not just founders who are at risk of losing here. Later-stage investors who come in at Series A+ and where companies do meet eligibility, or buyers who provide partial exits in growth rounds, risk losing the concession if companies exit before five years.
Early employees who need a modest liquidity event to buy a house, or start a family will be squeezed.
Angels who underpin the seed market will think twice before writing cheques if they cannot reasonably foresee whether their future gains qualify.
If the government wants to protect genuine innovation and deter tax gaming, there are smarter levers than the current ESIC eligibility and a blunt time lock. Make qualification more objective and predictable, so participants know whether they qualify before the business progresses, not years later when it’s too late.
Fix the eligibility gate itself. Lift the revenue and expense thresholds so a company isn’t knocked out the moment it starts gaining traction. Broaden the points-based test to reward what signals a genuine company building a great innovative product.
Allow partial liquidity that preserves the concession when done under clear conditions. Let founders, employees and earlier investors sell a capped slice (say 10-20%) without losing the discount. These sales made into a genuine funding round not off-market, or thresholds that trigger retention of the concession for the remaining shares.
If there must be a holding period at all, set it at three years, not five. Long enough to reward genuine commitment, short enough to fit the timelines startups move on. Also create a low-cost, fast certification pathway with an appeals process; certainty, not punishment, attracts capital.
Crucially, include a review clause & process. If the policy doesn’t increase early-stage investment or commercialisation in a defined window, fix it quickly.
So let’s call it what it is. While I welcome a government that wants to encourage innovation and close loopholes, selling this as support while quietly narrowing who can benefit is disingenuous. If Canberra wants founders to feel supported, it should make the path clear, keep liquidity channels intact, align holding timelines to benefit the risk-takers and remove judgement-heavy gates that increase complexity or disadvantage.
Otherwise, they should stop pretending this is a boost.
For many early founders, backers, and employees it will feel like the opposite.
- Alex Knight is founder and CEO of R&D finance firm Advanced.
