The Treasury Laws Amendment (Tax Reform No. 4) Bill 2026 was introduced to Parliament on October 20, proposing a lower innovation threshold for the startup tax concession and a way to protect some existing shareholders as companies mature. The bill remains before Parliament.
Treasurer Jim Chalmers previewed the package at the Citi A50 Australian Economic Forum in Sydney on October 22. He said it would include “CGT concessions for startups, changes to the Research and Development Tax Incentive, and new venture capital incentives.”
The proposal follows two rounds of consultation. Measures announced in the May budget had prompted alarm and debate among startup companies and investors.
The latest draft loosens some requirements. It does not remove the conditions investors and companies must meet.
A separate concession offsets the 2027 change for startup equity
The Innovative Business CGT Concession, or IBCC, would give eligible founders, employees and investors a 50% discount on gains from qualifying equity investments. It addresses a problem the government says broader capital-gains changes could create for startup investors.
Under reforms passed earlier this year, individuals, trusts and partnerships will move from the 50% CGT discount to cost-base indexation and a 30% minimum tax rate on gains accruing from 1 July 2027. Founders may hold shares issued for cents; employees may acquire equity at a nominal exercise price. Indexing a very small cost base offers little relief against a large gain.
Investors must meet tests on the asset, holder and company
The concession would not apply to a company, complying superannuation entity or foreign resident at the time of the CGT event. The gain must come from an eligible asset that is not disqualified at that time.
Eligible assets include company shares, options originally issued by the company to acquire its shares, and convertible notes that are not debt interests. The holder must bear the investment risk, without an arrangement to protect the asset’s value or its returns. The asset generally must be issued on or after 1 July 2027, with transitional rules for earlier issues.
The company must qualify when it issues the asset, rather than when the investor sells. It must have been incorporated under Australian law for less than 15 years. The rules also set conditions for direct issuance, certain trusts and venture-capital entities, and interests acquired under an employee share scheme and held in or provided by an employee share trust.
Investors generally must hold their interest for at least three years. Variations cover some takeover or trade-sale arrangements, interests held by trustees for beneficiaries, and carried-interest cases involving specified venture-capital funds and partnerships.
The bill lowers the activity test and lets companies protect earlier holdings
September’s exposure draft required more than 75% of at least two measures, assets, employees and income, to relate to qualifying innovative activity. The bill lowers the predominant-activity threshold to more than 50%.
The workforce measure would count contractors and other service providers, while assets held for future qualifying use could also count. Companies would be assessed against their most recently completed financial year. A company without a completed year would be judged on reasonable expectations for its first year.
The test of a company’s intention to continue qualifying activity falls from five years to three after registration. That is separate from the investor’s holding period. The explanatory memorandum also says companies may pivot between different qualifying innovations, though moving into an ineligible activity could put eligibility at risk.
A new option would let a company permanently stop issuing qualifying equity while preserving the concession for existing holders. The company must notify the government and continue meeting the activity test from registration until three years after that notice. It cannot withdraw the notice, and later equity issues would not qualify.
The long-term activity provision falls from 20 years to 18. The revised drafting aims to prevent automatic disqualification, but reporting failures or incorrect information could still lead to cancellation. A public register would show a company’s registration status, suspensions and certain rulings; the bill also removes some annual reporting requirements.
Business groups warn later changes could still cost investors
Submissions closed on September 28, 2026. Australian Industry Group chief executive Innes Willox said the bill added a clawback risk if a company stopped focusing predominantly on innovation. He warned that investors could lose the concession as a startup commercialised and exited the scheme.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the rules could force founders to choose between staying within a narrow concession and pivoting to meet the market. Seek co-founder and Square Peg co-founder Paul Bassat called for simpler rules, warning that the carve-out risked becoming “devoid of substance.” Square Peg manages more than $6bn in startup investments, including a stake in Canva, valued at $65bn.
Wilson Asset Management chairman Geoff Wilson criticized the activity test as a possible penalty on companies that broaden their operations. He also argued that venture-capital managers could receive the discount on carried interest while everyday investors supplying funds through listed investment companies or superannuation received no equivalent concession.
BDO Australia raised questions about measuring company activity, overseas service providers and how the IBCC interacts with the Early Stage Innovation Company regime. It also warned that retrospective cancellation, or suspension after a missed annual report, could affect investors even when a company met the substantive conditions. The agency’s compliance decisions could reach back to earlier investments.
R&D and venture-capital changes remain part of the package
Chalmers said better targeting of the R&D Tax Incentive would unlock an extra $400 million in R&D by young firms every year. That is a government estimate of additional activity, not a new grant allocation.
The September draft proposed starting the R&D changes in July 2028, lifting the turnover threshold for refundable offsets to $50 million and allowing a 15-year eligibility window for qualifying therapeutic-goods research. The Tech Council of Australia argued that removing supporting activities from eligible expenditure could outweigh higher offsets for core research, particularly for software, artificial intelligence and deep-tech startups. It also opposed limiting refundable offsets to businesses operating for less than 10 years, citing long commercialisation periods for quantum, robotics and space companies.
The venture-capital proposal would increase the maximum size of Early Stage Venture Capital Limited Partnership funds from $200 million to $270 million from July 2027. Annual compliance requirements under the program remain a concern for investors.
Earlier revisions cut the proposed minimum holding period from five years to three, removed a proposed $10 million lifetime cap and extended the company age limit from 10 years to 15. Ben Grabiner, founding partner of Side Stage Ventures, led a working group of about 20 technology entrepreneurs that lobbied for a retreat on the $77bn tax grab announced in the May budget. Linktree’s Alex Zaccaria, Elita’s Paloma Newton and Eucalyptus co-founder Charlie Gearside also joined the effort. Grabiner said he was “cautiously optimistic,” while warning that founders still faced added bureaucracy.
Melbourne investment banker David Williams, who chairs ASX-listed biotech Arovella, called the 15-year limit too short for drug discovery and criticized the $50 million turnover cap. Sicona Battery Technologies founder Christiaan Jordaan warned that added complexity could push young founders to consider setting up elsewhere, including Singapore.
The broader CGT changes passed both houses in June 2026 after the Albanese government reached an agreement with the Greens. They apply to gains accruing on and after 1 July 2027, including gains on assets acquired earlier; the discount remains for new housing, and existing small-business CGT concessions are retained.
