In its submission to the Treasury consultation paper, known as the Innovative Business CGT Concession (IBCC) FinTech Australia argues that while the carve-out is designed to prevent startups becoming collateral damage from the government’s broader CGT reforms, it will have the opposite effect on fintechs, making the policy an “existential threat” to a sector that contributes $13.6 billion in direct value to the Australian economy.
The changes, announced in the May budget, replace the existing 50% CGT discount for individuals, trusts and partnerships with cost-base indexation and a 30% minimum tax on capital gains accruing after July 1, 2027.
In the wake of strong protest from the startup sector, Treasury released a consultation paper last month with a proposed a targeted concession to preserve a 50% discount for eligible shares and options in what were dubbed “innovative” startups. Responses to the paper closed on Friday
The Treasury paper acknowledged that startups are central to jobs and productivity, with companies less than five-years-old creating around 60% of new jobs in Australia over the past 20 years, alongside strong productivity gains.
But FinTech Australia CEO Rehan D’Almeida argues that fintech is not a typical startup category and the shape of the proposal as it stands could put the sector at a “unique disadvantage” adding that it will also add to uncertainty around investment, especially when it comes to shares and options that might qualify for the IBCC
“Almost all fintech startups will be ineligible for the proposed Innovative Business CGT Concession (IBCC) if it goes ahead,” he said.
“Worse, as it stands founders, employees and investors will not be able to understand nor confidently rely upon the IBCC when making commercial decisions; it will take years for them to know whether their companies, employee equity schemes and investments will or will not benefit from the IBCC.
D’Almeida said that as well as being highly regulated, fintech is capital hungry, slow to scale, expensive to staff and competes for talent with banks, insurers and global financial services giants.
“Similar to biotech, fintech is one of the most expensive and riskiest businesses to launch,” he said.
“Because returns come late, if at all, access to consistent long-term capital is critical. Fintechs must also recruit from the lucrative corporate financial services sector, which is challenging without the long-term incentives of employee equity. By excluding most fintechs, the IBCC undermines both, making it an existential threat to the sector.”
A key sticking point for FinTech Australia is the retrospective declaration years down the track by the ATO or Treasury on whether a startup was “innovative” enough to qualify is too subjective.
FinTech Australia’s 10 recommendations include lifting the proposed turnover threshold from $50 million to $75 million, extending the company age limit, indexing monetary thresholds, protecting employee equity and commercial restructures, and replacing the $10 million lifetime cap with a UK-style reinvestment deferral model.
Its first three recommendations focus on certainty: make eligibility prospective, make the innovation test more objective, and create a practical upfront mechanism for binding determinations.
The submission also warns against relying too heavily on existing venture capital exclusions. Treasury’s paper notes that VC rules exclude some finance activities, other than when developing technology for use in finance. That creates something of a Catch 22 for fintechs.
FinTech Australia also wants consideration around longer time frames for biotech, medtech and deep tech, beyond the proposed 10-year company age limit, applied to fintech too.
The full submission is available here.
- Disclosure: Startup Daily editor Simon Thomsen also made a submission to the Treasury IBCC consultation in a personal capacity.
