Australian capital gains tax (CGT) reforms for start-ups: What the new proposals could mean in practice

The latest round of Australian tax reform matters because it is no longer just about housing and headline politics. The 18 June 2026 announcements added targeted concessions for small business and innovative start-ups, signaling that the Government is trying to preserve investment incentives while still pressing ahead with a broader rewrite of capital gains tax (CGT) from 1 July 2027.

For founders, CFOs, tax managers and investors, now is the time to look beyond the headlines and start planning for the future. Businesses that expect future exits, equity raisings or employee equity events should start testing whether they could fit within the proposed settings, because the concessions are highly conditional and the design is still under consultation.

What is proposed

The broader CGT reform package announced in the Federal Budget on 12 May 2026 included replacing the existing 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on gains accruing from 1 July 2027. These changes are not yet law and are intended to apply prospectively from that date if they pass.

Against that backdrop, the Government has now announced two important start-up and small business concessionary measures.

First, it will increase the turnover threshold for the existing small business 50 per cent active asset CGT reduction (which allows eligible small businesses to reduce the taxable capital gain on the sale of an active business asset by 50 per cent) from $2 million to $10 million. Secondly, it has released a consultation paper on a new Innovative Business CGT Concession (IBCC), aimed at early investment in innovative start-ups.

Under the proposal, the IBCC would provide a targeted 50 per cent discount on nominal capital gains for eligible shares and options in qualifying innovative start-ups. Eligible taxpayers could choose between that 50 per cent discount with no minimum tax, or the new general method of cost base indexation plus the 30 per cent minimum tax when they realise a gain.

Under the proposed eligibility conditions, shares would generally need to be new equity issued after 30 June 2027 by an unlisted, independent company, issued when the company has turnover below $50 million and is less than 10 years old, issued by a business that is both active and innovative, and then held for at least five years.

The consultation paper also highlights the Government is considering expanding the eligibility requirements from 10 to 15 years for start-ups in the deep tech sectors, such as biotech and medtech, due to the time taken to commercialise.

The IBCC would not be available to companies, foreign residents or superannuation funds. A lifetime cap of $10 million of gains per individual is also proposed.

In addition, the consultation paper proposes transitional rules for certain existing shares issued before 1 July 2027. Those transitional settings are designed to allow qualifying investors in innovative start-ups to access concessional treatment on gains arising from 1 July 2027, provided the start-up and the shares issued meet the specified conditions. Stakeholder submissions close on 10 July 2026.

Why this matters in practice

The practical shift is that start-up tax planning may become more evidence-driven and more timing-sensitive. It will no longer be enough to assume that a future exit simply benefits from familiar CGT discount mechanics. Tax outcomes may now depend on when equity is issued, whether the company is genuinely innovative at that time, whether it remains within turnover and age thresholds, and whether the investor can satisfy a five-year holding period.

For founders and early-stage investors, the proposed concession is potentially valuable, but it is not automatic. Companies will need to demonstrate they are genuinely innovative. The innovation test is framed around principles already seen in the Early Stage Innovation Company (ESIC) tax incentive scheme, including commercialisation of new or significantly improved innovations, high growth potential, scalable business capability, broader-than-local market opportunity and competitive advantage. The paper also says start-ups would need records supporting those claims, such as business plans, commercialisation strategies or competition analysis at the time that new equity is issued.

That means the tax issue effectively shifts upstream. As a result, Boards and management teams may need to regard innovation evidence, equity issuance documentation, capitalisation (cap) table governance and turnover tracking as critical tax substantiation assets for their eligible shareholders, rather than treating them as administrative corporate records. Where businesses expect a capital raise before 1 July 2027 or shortly after that date, the sequencing of the raise and the terms on which shares are issued may become commercially significant.

The proposal also has a people dimension. The concessional design expressly contemplates founders, ESS participants and ESOP holders whose interests are taxed on capital account. In practice, start-ups using employee equity will need to revisit whether existing plan rules, vesting horizons and holding expectations align with a five-year minimum holding period and the broader qualifying conditions.

For larger private groups, there is a separate message in the increase from $2 million to $10 million for the 50 per cent active asset CGT reduction threshold. That should materially broaden access to one of the small business CGT concessions for business owners contemplating sales of active assets. However, the consultation materials make clear that the other small business CGT concessions remain otherwise unchanged, so taxpayers should not assume there has been a wholesale rewrite of that regime.

BDO’s perspective

Our view is that these proposals are directionally helpful for innovation, but they also introduce a sharper divide between taxpayers who can prove they fit the strict eligibility and innovation criteria and those who cannot. The commercial opportunity is that a targeted concession aimed at direct early risk capital could preserve support for founders, employees and investors even as the wider CGT rules tighten from 1 July 2027.

The risk is execution, as the more targeted the concession, the more pressure there will be on definitions, records and edge cases.

We expect the difficult questions to sit around innovation evidence, later-stage capital raises and issues, interactions with other concessions, and whether particular equity holders are inside or outside the intended population. The fact that Treasury is consulting on longer eligibility periods for deep tech also shows that the current design is still being tested against real-world business models.

How BDO can help

If you are planning capital raises, exits or employee equity arrangements, the key is preparation rather than certainty: understanding where the proposals could create value, where they could disappoint, and what evidence will be needed if these measures proceed in anything like their current form.

BDO’s tax experts can support by framing practical tax questions early, stress-testing likely eligibility under the proposed rules and identifying the records that may matter later - contact us today if you need support as you prepare for these changes.