CPA Australia's case for a better start-up CGT concession

For 17 consecutive years, Australian small businesses have ranked at or near the bottom of the Asia-Pacific region for innovation and technology adoption.

That is not a one-off result. It is a trend that tells a story about the structural conditions that shape whether innovation happens at all. And part of that story is tax settings.

This is why CPA Australia’s submission to Treasury on the proposed capital gains tax (CGT) concession for start-up investors matters for advisers and their clients. The accounting body supports the measure.

But it warns the concession, as currently designed, will fall short unless Treasury resolves several practical issues before it takes effect.

Jenny Wong, Tax Lead at CPA Australia, does not soften the warning.

“Well-designed tax settings that reward 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.”

The numbers she refers to are damning. CPA Australia’s Asia-Pacific Small Business Survey has placed Australian small businesses at or near the bottom of the region on innovation and technology adoption for 17 straight years. A tax concession that looks good on paper but proves difficult to access in practice will not move that dial.

The gap between policy and practice

CPA Australia supports the intent behind the proposed concession, which aims to encourage investment in innovative Australian start-ups through a CGT discount for eligible investors. But the submission draws a direct parallel with the Early Stage Innovation Company (ESIC) rules, where the gap between policy design and practical accessibility undermined the measure’s reach.

“Our recommendations are about one thing: making sure the concession is as broad in practice as it is on paper. The ESIC experience shows what happens when that gap is left open,” Wong said.

For advisers working with clients in early-stage businesses, the ESIC comparison is instructive. Complex eligibility tests and uncertainty about who qualifies have long deterred investors from using the ESIC concession. CPA Australia is urging Treasury not to repeat those conditions.

The tax cliff at year four

One of the submission’s most pointed concerns involves the period between 12 months and five years. Under the proposed design, investors who sell eligible shares during this window would be worse off than under current arrangements. They lose access to the existing 50 per cent CGT discount without yet qualifying for the new concession.

In practice, that creates a tax cliff.

“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,” Wong said.

CPA Australia recommends a graduated discount starting at three years and scaling to the full 50 per cent at five years.

The fix is targeted. It preserves the concession’s intention of rewarding patient capital while removing the arbitrary penalty on investors who exit just before the five-year mark.

The self-assessment problem

Certainty of eligibility is another concern. Under a self-assessed test, a company must determine whether it qualifies as innovative. But the tax risk for that determination falls on investors and employees, not the company itself.

“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,” Wong said.

CPA Australia recommends a binding pre-clearance pathway, building on the Australian Taxation Office (ATO) ruling process that already exists for ESIC. This would allow investors and employees to obtain certainty before committing, and would strengthen the integrity of the concession in the process.

For advisers structuring investments in start-ups or advising employees participating in share schemes, this uncertainty has a direct cost for clients. Without a mechanism to confirm eligibility upfront, the concession becomes difficult to rely on in advice.

Acquisition should not mean exclusion

The submission also addresses a scenario that is common in the start-up market: acquisition.

Employees participating in start-up employee share schemes currently risk losing access to the concession when their company is acquired, even when that acquisition represents a win.

“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,” Wong said.

Certainty cannot wait until 2027

The concession comes into force on 1 July 2027. CPA Australia is urging Treasury to publish detailed guidance on eligibility and any proposed clearance process well before that date.

“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,” Wong said.

For advisers with clients considering start-up investment or employee share arrangements, the message is clear.

The concession is coming, but its practical shape is still being determined. Understanding how the final design affects eligibility and client planning is where the advisory value rests right now.