Chalmers Eases Startup CGT Carve-Out Rules After Industry Backlash

The Albanese government has backed away from several of the most contentious aspects of a proposed startup carve-out from its capital gains tax overhaul, following intense feedback from the industry.

The exposure draft, released on Friday, details the Innovative Business CGT Concession (IBCC), designed to protect founders, early employees and investors from the impact of the government’s broader CGT changes. Treasury is now seeking feedback on the draft, with submissions open until September 28.

The broader CGT changes, announced in the May Budget and already passed into law, replace the existing 50% CGT discount for individuals, trusts and partnerships with cost-base indexation and a 30% minimum tax on gains accruing from July 1, 2027.

Those changes triggered a fierce response from the startup and investment sectors, who feared cutting the 25-year-old discount would stifle venture investment and drive founders overseas. In response, the government sought to placate the industry with the IBCC, alongside a Senate hearing and subsequent consultation paper.

The revised IBCC addresses key concerns: the minimum holding period for shares has been reduced from five to three years, the proposed $10 million lifetime cap on gains has been removed entirely, and the eligibility window for companies has been extended from 10 to 15 years.

Why This Matters

The IBCC is a critical safeguard for Australian startup founders, early employees and angel investors who would otherwise face a significantly higher tax burden under the government's broader CGT changes.
The concessions signal that the government is listening to industry feedback, but the final design will determine whether Australia remains competitive for venture capital and high-growth startups.
With submissions open until September 28, the next few weeks are a key window for stakeholders to shape the final legislation.

Background

The government’s broader CGT reforms, passed in the May Budget, replace the longstanding 50% CGT discount with a cost-base indexation system and a 30% minimum tax rate from July 1, 2027. The startup sector strongly opposed the changes, arguing they would discourage risk-taking and investment. The IBCC was introduced as a targeted carve-out for innovative companies, but its initial parameters — including a five-year holding period and a $10 million lifetime cap — were also met with criticism. The exposure draft released Friday represents a significant revision based on that feedback.

Key Perspectives

Startup founders and early employees: Benefit from a lower holding period (three years instead of five) and no lifetime cap on gains, making it easier to realise returns and stay in Australia. Angel investors and VCs: Removal of the $10 million cap is a major win, as it allows larger exits without additional tax penalties. The extended 15-year company eligibility also provides more flexibility for late-stage startups. Critics/Skeptics: Some may argue that the carve-out still adds complexity to the tax system and that the broader CGT changes remain harmful to non-innovative businesses. Others may question whether the three-year holding period is sufficient to encourage long-term commitment.

What to Watch

Feedback submitted before the September 28 deadline and any further adjustments in the final legislation.
Whether the IBCC is effectively implemented to prevent abuse while genuinely supporting innovation.
The broader impact of the CGT changes on Australia’s startup ecosystem, especially compared to other investment destinations.

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