The federal government has proposed a new capital gains tax concession for innovative start-ups – with the Treasury looking at longer eligibility periods for biotech and medtech companies because of the extra regulatory requirements involved in commercialising such technologies.
Treasury’s consultation paper on the proposed Innovative Business CGT Concession (IBCC) notes the government intends to introduce a targeted CGT discount for investors in innovative start-ups – including founders, employee share scheme participants, early-stage investors and general partners of eligible limited partnership funds.
The proposed concession would provide a targeted 50 per cent discount on nominal capital gains on early investors’ shares and options in innovative start-ups, maintaining the existing CGT treatment for eligible shares.
Shareholders would be able to choose between calculating their CGT liability using the 50 per cent discount without a minimum tax, or using cost-base indexation and the proposed 30 per cent minimum tax when they realise a capital gain.
The consultation paper follows earlier concerns from Australia’s health and life sciences sectors about the potential impact of the government’s broader CGT changes – particularly for companies with long commercialisation timelines.
Under the new proposal, eligible shares would need to be new equity issued after 30 June 2027 by an unlisted and independent company, issued while the start-up has turnover of less than $50 million and is less than 10 years old, issued by an active and innovative start-up and held by the taxpayer for at least five years.
However, Treasury noted that because biotech and medtech start-ups could be subject to additional regulatory requirements for clinical trials and safety requirements, they can take longer to commercialise.
“The Government will consider expanding eligibility to 15 years for these start-ups where it can be justified with respect to additional regulatory requirements,” the paper says.
“The Government will consider a similar expansion of eligibility for deep tech start-ups, where these activities can be clearly defined and justified. The Government will also consider relaxing the listing disqualification for these types of start-ups where necessary.”
The consultation paper also proposes a $10 million lifetime cap on the total capital gain eligible for concessional treatment, before the discount is applied, providing what Treasury describes as a maximum lifetime benefit of $2.4 million.
Submissions on the consultation paper close on 10 July.
AusBiotech welcomed the announcement of the new IBCC and the release of the consultation paper, saying it particularly welcomed the explicit recognition of biotechnology and medical technology.
AusBiotech CEO Rebekah Cassidy said the proposals were a positive step forward.
“AusBiotech advocated tirelessly for recognition of the health innovation sector, as well as the unique traits of life sciences founders, their employees and investors,” Ms Cassidy said.
“We welcome that recognition in the Discussion Paper as an important step forward.
“Australia’s health innovation sector is a critical part of the Australian economy, which employs around 350,000 people and has doubled in size since 2017.
“Biotechnology is a sector dedicated to saving lives and improving patient outcomes.”
AusBiotech said the paper acknowledged the long development and commercialisation timelines involved in bringing new therapies, technologies and medical innovations to market.
It also welcomed recognition that many companies in the sector list earlier than businesses in other industries, often to access the capital required to progress clinical trials and development.
“Proposals such as longer eligibility periods for biotech and medtech start-ups, and allowing listed as well as unlisted companies to apply in specific circumstances, would be a good step towards acknowledging the realities of building a life sciences company in Australia,” AusBiotech said.
The Tech Council of Australia also welcomed the consultation paper, with CEO Dr Kate Cornick saying the government had listened to concerns raised by founders, employees and early investors.
“This is a constructive response that shows the Government has listened to their concerns,” Dr Cornick said.
“Successful startups and scaleups create jobs and build the industries that underpin future prosperity for all Australians. To grow more innovative companies here, productive risk taking must be rewarded.”
Chartered Accountants Australia and New Zealand also welcomed the decision to lift the small business CGT turnover threshold from $2 million to $10 million.
CA ANZ Tax Leader Susan Franks said raising the threshold would give more active small businesses access to an important CGT concession.
“These businesses are the lifeblood of our economy, and this change will make a real difference,” Ms Franks said.
“This update makes the CGT system more workable, and ensures concessions reach the operators they were designed to support.”
CA ANZ said it looked forward to reviewing further detail on the proposed innovative business tax concession, while noting that several issues raised during the recent Senate inquiry process remained unresolved.
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