Submission on the Innovative Business CGT Concession exposure draft legislation

ATSE welcomes the creation of a Capital Gains Tax (CGT) concession for early-stage investors, founders and employee share scheme participants in innovative businesses. The question now is whether the proposed design is sufficient to support long-term innovation and productivity growth. Several aspects of the proposed design risk limiting its effectiveness in supporting the innovation system.

This submission draws on the views of ATSE Fellows with experience in founding, investing in and scaling innovative companies. ATSE’s recommendations are intended to be targeted and fiscally contained, consistent with the Government's objective of focusing the concession on genuine innovation start-ups.

ATSE makes the following recommendations:

Recommendation 1: Measure the eligibility period from a company's first commercial sale rather than its incorporation or provide a longer period for companies that must complete lengthy regulatory pathways.

Recommendation 2: Allow new equity issued directly by small listed companies, below a defined size threshold, to qualify as IBCC assets.

Recommendation 3: Ensure the affiliate rule and the innovation test do not exclude university and research institute spinouts, including through a safe harbour for spinouts from publicly funded research organisations.

Recommendation 4: Support sectoral certainty by indexing or periodically reviewing the turnover cap. 

Recommendation 5: Protect investors from losing the concession because of a company's administrative failures.

Recommendation 6: Commit to an evaluation of the IBCC within five years of commencement, including its effects on capital raising and business expenditure on R&D.