TITLE: Australia’s Startup Tax Bill Reaches Parliament with Looser Innovation Test
Check how the proposed startup concession has changed
The Bill’s Innovative Business CGT Concession (IBCC) would give eligible founders, employees and investors a 50% CGT discount on qualifying equity investments. Its most significant change is a lower predominant-activity threshold.
Under the September draft, more than 75% of at least two of a company’s assets, employees and income had to relate to qualifying innovative activities. The Bill lowers this to more than 50% of at least two measures. It also allows contractors and other service providers to count in the workforce measure, and assets held for future qualifying use to count.
The test would generally use the most recently completed financial year. A new company without a prior income year could rely on reasonable expectations about its qualifying activities during its first year. Companies could also pivot between qualifying innovations without automatically losing eligibility. A response to concerns raised by the technology sector.
Other changes include reducing the required intention to continue qualifying activities from five years to three after registration. That is separate from the proposed three-year investor holding period. A company could give an irrevocable notice that it will stop issuing IBCC-qualifying equity, while preserving a pathway for existing holders, provided it continues to satisfy the activity test for three years after the notice.
The long-term activity period falls from 20 to 18 years and is rewritten to avoid automatic disqualification. A public register would show registration status, suspensions and certain rulings. Transitional provisions are also intended to prevent existing companies from being unnecessarily retested.
The September draft’s $50 million turnover ceiling, Australian workforce and asset requirements, 15-year company eligibility window and three-year investor holding period remain. The proposed $10 million lifetime cap remains scrapped. Some transactions, including scrip-for-scrip deals and certain restructures, remain excluded.
See the Parliament bill page for the introduced legislation. For background on the lead-up, read our 23 October Australia tax update.
Review the R&D and other tax measures in the package
The Bill also includes changes beyond startup CGT. Schedule 2 would reshape the R&D Tax Incentive, including:
- Increasing core R&D offset rates by up to 50%.
- Raising the turnover threshold for refundable offsets from $20 million to $50 million and lowering the R&D intensity threshold.
- Extending refundable offset access to up to 15 years for eligible therapeutic-goods, biotech and medtech firms.
- Requiring a Research Service Provider or Cooperative Research Centre partnership for claims below $50,000, with exceptions.
- Giving a Treasury Minister, in consultation with the Industry Minister, power to prescribe activities integral to core R&D.
The Government expects the R&D changes to lift investment by young firms by $400 million a year. However, technology-sector concerns remain about the treatment of supporting activities. Startup Daily reported that one frontier AI company attributed 70% of its eligible expenditure to supporting activities. Further consultation, including on clinical manufacturing, is promised for early 2027.
Schedule 3 expands venture capital incentives, with key thresholds unchanged from the September draft; it also clarifies carried-interest rules involving trusts. Schedule 4 would let quarterly PAYG instalment payers elect monthly payments, while allowing the Commissioner to require monthly reporting from taxpayers with a history of non-compliance.
Schedule 5 changes electric-car FBT settings. The full 100% discount would continue for eligible electric cars valued up to $75,000 from 1 April 2027 to 31 March 2029. From 1 April 2029, a 25% discount would apply to qualifying cars up to the fuel-efficient luxury car tax threshold.
Watch the House vote and Senate negotiations
Treasurer Jim Chalmers delivered the second reading speech in the House of Representatives on Tuesday. The vote, initially expected that day, was pushed to Wednesday 28 October. The published second reading speech sets out the Government’s case for the measures.
Shadow Treasurer Tim Wilson criticised the short notice, saying the Bill had been flagged just before midnight and his briefing came on Tuesday morning. The Nightly’s report covers the criticism and delay.
Labor has a House majority, but Senate support is not assured. The Greens have threatened to withhold support for the R&D changes unless oil and gas companies are excluded from around $350 million in annual tax credits. Because the measures are bundled together, Senate negotiations could affect the startup concession and other parts of the package too.
Prepare your records, but don’t assume the rules are final
Keep share registers, issue and transfer documents, investor agreements, financial-year accounts, workforce records and evidence of innovation activities. For R&D claims, retain project cost records and supporting invoices. These records will help you assess eligibility if the Bill becomes law.
Do not treat the proposed IBCC as a confirmed tax outcome or apply it to a transaction before checking the final legislation. It is also separate from the broader CGT overhaul in Tax Reform No. 3, which is set to apply from 1 July 2027.
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FAQs
Has the Australian startup CGT concession become law?
No. The Bill has been introduced in Parliament, but its provisions are proposed and may change before enactment.
What is the main change to the innovation test?
The Bill lowers the proposed threshold from more than 75% to more than 50% of at least two measures: assets, employees and income. Contractors and service providers can count in the workforce measure.
Is the IBCC part of the broader CGT overhaul?
No. The IBCC is a separate proposed concession. The broader CGT overhaul under Tax Reform No. 3 is scheduled to apply from 1 July 2027.
What is happening with the R&D Tax Incentive in the same Bill?
The proposed changes would increase core R&D offset rates by up to 50%, widen refundable offset access for young firms and eligible biotech and medtech firms, and add a ministerial power to prescribe activities integral to core R&D.