CPA calls for practical reform to make start-up tax concession work

• CGT concession changes are needed to ensure it works in practice
• Australian small businesses lag Asia-Pacific region for innovation and tech adoption, CPA Asia-Pacific Small Business Survey shows
• Concession must provide certainty for investors, employees and founders

Australia’s largest accounting body CPA Australia says it supports Treasury's consultation on the proposed capital gains tax (CGT) concession for investors in Australian start-ups, but warns the measure will fall short unless practical design issues are addressed.

In its submission to Treasury CPA Australia says the concession has the potential to encourage greater investment in innovation and productivity-enhancing businesses, but must be accessible, commercially workable and provide certainty for investors, employees and founders.

CPA Australia Tax Lead Jenny Wong said Australia continues to lag behind many of its regional peers when it comes to innovation and technology adoption among small businesses.

"Our Asia-Pacific Small Business Survey found Australian small businesses at or near the bottom of the region on innovation and technology adoption for 17 straight years," Ms Wong said.

"Well-designed tax settings that reward genuinely innovative activity are a necessary part of any serious productivity agenda – but a concession that can't be accessed in practice won't shift those numbers."

CPA Australia supports the policy intent of the proposed concession but believes several targeted changes would improve its effectiveness.

"CPA Australia supports a targeted CGT concession for early investment in innovative start-ups, and we commend Treasury for consulting openly on its design," Ms Wong said.

"Our recommendations are about one thing: making sure the concession is as broad in practice as it is on paper. The Early Stage Innovation Company (ESIC) experience shows what happens when that gap is left open."

CPA Australia’s submission highlights concerns that investors disposing of eligible shares between 12 months and five years would be worse off than under current arrangements because they would lose access to the existing 50 per cent CGT discount without qualifying for the new concession.

"An investor who backs an innovative Australian company and exits at four years would get no discount at all – not the old one, not the new one. A graduated discount from three years, scaling to the full 50 per cent at five years, keeps the patient-capital signal while removing the hard cut-off,” Ms Wong said.

CPA Australia adds that certainty of eligibility is critical if the concession is to influence investment decisions. Drawing on member experience with the ESIC rules, the submission notes that self-assessed eligibility tests can create uncertainty for investors and employees.

"It is commercially risky for a company to call itself ‘innovative’ under a self-assessed test, yet the tax risk sits with investors and employees who have no visibility into the company's paperwork," Ms Wong said.

"A binding pre-clearance pathway – building on the ATO ruling process that already exists for ESIC – would fix that, and it would strengthen integrity at the same time."

CPA Australia also recommends that employees participating in start-up employee share schemes don’t lose access to the concession if their company is acquired.

"Acquisition is often the most common pathway to success for innovative start-ups. Employees should not lose access to the concession simply because their company has been successfully acquired. Eligibility and accrued holding periods should transfer when shares or options are exchanged as part of a genuine acquisition," Ms Wong added. 

CPA Australia is urging Treasury to publish detailed guidance on eligibility, innovation principles and any proposed clearance process well before the concession is due to commence on 1 July 2027.

"Investment decisions for 2026–27 are being made right now, in the shadow of these rules. Treasury should settle and publish the eligibility guidance well before the 1 July 2027 start date. Certainty delayed is, for this measure, concession denied," Ms Wong said.

CPA Australia said a well-designed concession could help improve Australia's innovation performance, attract capital to high-growth businesses and support long-term productivity growth.

 

Media contact

Adrienne Biscontin
External Affairs Adviser
[email protected]
0429 009 691