16 September 2026 • 3 minute read
The government has published draft legislation for its innovative business CGT concession, which will allow eligible businesses to claim a discount on capital gains when the new CGT regime begins.
The government has released draft legislation for its proposed CGT concession for innovative businesses for consultation, following earlier consultation on the concession’s proposed design in June.
The innovative business CGT concession (IBCC) provides a 50 per cent discount on capital gains from early-stage investments in innovative startups.
The government is currently seeking feedback on the exposure draft legislation and explanatory memorandum to implement the IBCC, including administrative and transitional arrangements for existing start-ups.
The exposure draft legislation includes changes from the previous consultation, such as extending the 15-year eligibility period to all firms, lowering the minimum holding period to three years, and removing the lifetime cap.
The government said the exposure draft legislation allows a flat percentage discount for gains on shares in innovative startups with growth potential and the ability to generate significant spillover benefits.
The bill amends the income tax law to introduce a CGT discount of 50 per cent for capital gains of eligible entities arising from IBCC assets that are not disqualified assets, as a result of CGT events occurring on or after 1 July 2027.
“Consistent with other capital gains for which a discount remains available, the minimum tax on capital gains will also not apply to these gains,” the explanatory memorandum read.
For an entity to be eligible to apply the CGT discount on an IBCC asset, Treasury said the entity must choose to apply the discount rather than cost-base indexation.
“The entity must also not be a company, complying superannuation entity or foreign resident, as these entities have different CGT arrangements,” it read.
For a CGT asset to be an IBCC asset for a taxpayer, it must be broadly an equity interest issued directly by a company at a time when the company was an IBCC company to the entity or, in the case of a gain received through a trust, issued at that time to the trustee of the trust. The equity interest must be held at risk for at least three years.
“Outside of interests acquireduired from an entity other than the IBCC company,” the explanatory memorandum read
The draft legislation defines an IBCC company broadly as a company incorporated for less than 15 years, based in Australia, and not controlled by another company incorporated for 15 or more years.
“An IBCC company must not be listed or have aggregated turnover exceeding $50 million and must satisfy the innovative company and predominant activity tests requiring that it must have as its predominant activity an activity or activities relating to the development for commercialisation of a genuinely innovative product, process, service or method,” the memorandum read.
IBCC companies will also be registered with the industry secretary and comply with annual reporting requirements under the proposed legislation.
“In certain circumstances where the activities of a company change or it fails to comply with annual reporting requirements, the equity interests in the company that are IBCC assets will become disqualified assets for the purposes of the IBCC discount,” Treasury said.
“This means that entities holding those assets are not eligible for the IBCC discount for those assets.”
To help companies determine whether they meet the innovation requirements, the Industry Secretary will also provide public and private rulings on what it means to be an IBCC company or for a CGT asset to be a disqualified asset.
The government has also published a draft legislative instrument designed to help companies incorporated before 1 July 2027 self-assess whether they meet the innovation requirement for the IBCC.
Some of the conditions in the innovative company test include meeting either the R&D expenditure condition or the IP commercialisation condition, having high growth potential, demonstrating the ability to scale the business successfully, and demonstrating competitive advantages.
The government plans to consult separately on a similar legislative instrument for start-ups incorporating on or after 1 July 2027.
Treasurer Jim Chalmers said the proposed reforms will “support the continued growth of Australia’s start‑up and venture capital ecosystem which is good for innovation, good for productivity and good for the economy”.
“They mean early investors in innovative start‑ups that begin with a low or zero cost base still receive a significant discount on a future capital gain,” he said.
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Miranda Brownlee is the news editor of Accounting Times, an online publication delivering analysis and insight to Australian accounting professionals.
She was previously the deputy editor of SMSF Adviser and has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
You can email Miranda on: [email protected]
