Law Council of Australia

Business Law Section

Capital gains tax reforms—arrangements for innovative start-ups

Submission Date: 28 September 2026

The Taxation Committee of the Business Law Section of the Law Council of Australia (the Committee) welcomes the opportunity to make this submission to Treasury in response to the exposure draft legislation for the Innovative Business CGT Concession (IBCC), comprising the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Innovative Business CGT Concession (Exposure Draft Bill), the accompanying Explanatory Memorandum (Explanatory Memorandum), and the Income Tax Legislation (Innovative Company Test—Conditions for Existing Startups) Determination 2026 (Legislative Instrument), released on 11 September 2026.

This submission follows the Law Council’s earlier submission of 17 July 2026 to Treasury in response to the consultation paper, Capital gains tax reforms—arrangements for innovative start-ups (Consultation Paper), released on 18 June 2026. The Law Council’s earlier submission raised a number of concerns regarding the proposed design of the concession and made recommendations directed towards ensuring that the IBCC would operate coherently within the existing tax framework. This submission responds to the manner in which those issues have been addressed in the exposure draft legislation and identifies areas where the Committee considers further refinement is required.

The Committee commends the policy objective of ensuring that the Australian tax system continues to support innovation, entrepreneurship, employee ownership, and long-term productive investment. The Committee acknowledges that the exposure draft legislation addresses a number of matters raised in its earlier submission and in submissions made by other stakeholders. In particular, the Committee welcomes the reduction of the minimum holding period from five years to three years, the introduction of a registration and certification framework for IBCC companies, and the inclusion of employee share trust interests within the scope of IBCC assets. The central proposition of this submission is that the IBCC should be judged not by the theoretical availability of a concession but by whether it will, in practice, promote the establishment, financing and development of innovative Australian businesses. The regime should be assessed from the perspective of founders, investors, and employees at the time they make the economic decisions the concession is intended to influence.

This submission should be read together with the Committee’s earlier submission on the Consultation Paper and its submission of 9 June 2026 to the Senate Economics Legislation Committee in relation to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and related measures. That earlier submission raised broader concerns about the design, completeness, and implementation of the capital gains tax reforms. Those concerns remain directly relevant to the IBCC because the concession is not a standalone measure. It is a targeted exception to a broader reform enacted by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 and apply from 1 July 2027. Those Acts replaced the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation; introduced a 30 per cent minimum tax on capital gains under Division 119 of the ITAA 1997, with an exemption for recipients of certain government payments; applied the new arrangements prospectively to gains accruing on and after 1 July 2027, including gains on pre-CGT assets; retained the CGT discount for new and affordable housing; and maintained the existing small business CGT concessions.

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Last Updated on 01/10/2026

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