Australian Industry Group welcomed the opportunity to provide feedback on the proposed Innovative Business CGT Concession (IBCC) which comprises part of the broader package of capital gains tax (CGT) reform package introduced in the 2026-27 Federal Budget.

We support the objectives behind the introduction of the IBCC. Innovative early-stage businesses (colloquially "startups") will be especially negatively impacted by the cost-based indexation method adopted as part of the broader CGT reform package. Such businesses typically have a very low cost-base on establishment, generate investment returns primarily (if not exclusively) in the form of capital gains, and generate these returns over a very short period of time.

As Treasury acknowledges, startups will face higher effective tax rates under the new CGT indexation method than the flat discount method it replaces. They will also face higher effective tax rates than other types of businesses which generate investment returns over a longer period. By increasing the effective tax rate applied to startups, the broader CGT reforms will reduce their attractiveness for both local and international investors.

Recognising the unique features of these businesses, there are clear grounds for the introduction of a CGT concession to ensure Australia remains an attractive destination for startup investment.

However, the proposed IBCC fails to introduce an effective concession due to the complexity and stringency of its qualification rules. Heeding the principle of tax design, it is essential that a simpler and more accessible set of rules are developed.