Australia’s 50% capital gains tax (CGT) discount is set to be removed this week. The Australian Greens have confirmed their support for the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. This legislation replaces the flat CGT discount with a cost base indexation model and a minimum 30% tax on capital gains accruing from 1 July 2027, and now has safe passage through the Senate.
For the start-up sector, the passage of this legislation makes one quietly announced consultation process particularly important: the government’s proposal for a new Innovative Business CGT Concession (IBCC); a targeted 50% CGT discount for qualifying founders, employees, and early-stage investors in innovative start-ups. Submissions close on 10 July 2026.
The IBCC consultation paper was released on 18 June 2026 and poses a range of consultation questions to industry. The paper is the government’s first proposal for addressing the discourse which followed the 26-27 Federal Budget announcement in relation to removal of the broader CGT discount.
While the consultation paper emphasises existing tax incentives (such as the remaining generous Research and Development Tax Incentive), the IBCC seeks to address a structural problem that the CGT reforms create for start-up participants. Under the new regime, cost base indexation replaces the flat 50% CGT discount. As founders and start-up participants typically invest capital through labour and time (rather than making a material financial investment), they generally have a nominal cost base which cannot benefit from indexation. Without a specific concession, from 1 July 2027 a successful exit is likely to attract tax on substantially the full nominal gain. The IBCC is the government’s proposed mechanism for addressing this asymmetry, and its design will be determined through the current consultation process. With the primary legislation set to pass this week, the window to influence that design is narrow.
The proposed IBCC: how the concession would work
The IBCC would allow eligible individuals, trusts and partnerships to choose to apply a flat 50% CGT discount, rather than the new indexation and 30% minimum tax model, to capital gains realised on shares sold in qualifying innovative start-ups.
The proposed design parameters for eligibility, subject to the outcome of consultation and subsequent legislation, are as follows.
| Eligible holders | Individuals, trusts and partnerships (not companies, foreign residents, or superannuation funds). |
| Eligible investors | Founders, employee share scheme (ESS) and employee share option plan (ESOP) participants taxed on capital account, early stage investors. |
| Eligible shares | New equity issued after 30 June 2027, by an unlisted, independent company. (Transitional arrangements apply to shares issued before 1 July 2027 in start-ups less than 10 years old on 30 June 2027 with turnover below $50 million in FY2025-26). |
| Company eligibility | Annual turnover below $50 million; less than 10 years old at the time of equity issuance (with a possible extension to 15 years for biotech, medtech and deep tech, discussed further below); active business requirement (80% active asset test); meeting principles-based innovation criteria derived from the existing Early Stage Innovation Company program. |
| Minimum holding period | 5 years from the date of share issuance. |
| Lifetime cap | $10 million on total capital gains (i.e. before the discount); maximum lifetime benefit of approximately $2.4 million per individual. |
Biotech, medtech, and deep tech: a longer commercialisation runway
The consultation paper recognises that biotech and medtech start-ups face additional regulatory requirements, including clinical trials and safety approvals, that extend commercialisation timelines and delay returns for investors beyond the typical horizons of other start-ups. On that basis, the government proposes to consider extending the IBCC age limit from 10 to 15 years for these sectors. A similar extension may apply to deep tech start-ups where that category can be clearly defined, and the listing disqualification may also be relaxed for these types of start-ups where appropriate.
What should founders, investors, and employees consider before 10 July?
Submissions are due by 10 July 2026 and must be lodged online on The Treasury website. The IBCC will be implemented through a subsequent tranche of tax reform legislation following the close of consultation.
Hamilton Locke advises founders, investors, employees, and fund managers across Australia’s technology and innovation sector on the structuring and taxation of equity interests in start-up businesses. If you would like to discuss how the proposed IBCC may affect your position, or are considering making a submission to the Treasury consultation, please contact Toby Patten or Seema Sandhu.
