Last week, the federal government announced plans to expand access to small business capital gains tax (CGT) concessions by lifting the turnover threshold from $2 million to $10 million.

 

Prime Minister Anthony Albanese said the change means 98 per cent of Australian small businesses (~2.7 million SMEs) will be eligible to access the existing 50 per cent CGT discount.

 

The government also proposed a new concession for start-up founders, early-stage investors and employees with equity, potentially giving them an additional 50 per cent CGT discount on eligible shares and options. 

 

Beyond support for small business, the measures are also aimed at making Australia a more attractive place to start, invest in and scale innovative companies.

 

Who do these changes affect? 

 

The changes reach across several groups, namely:

- small and growing businesses 

- start-up founders

- early stage venture capital investors 

- employees who receive equity as part of their pay

 

For startups, employee share schemes are often a way to attract and retain top talent. A favourable tax treatment can make those equity stakes more valuable and help younger companies compete for skilled workers.

 

For founders or investors, the key question is not just what they earn, but what they keep if the business succeeds.

 

While only a small share of businesses become high-growth success stories, those that do often create thousands of jobs, attract overseas capital and generate new export industries. 

 

Westpac Senior Economist Pat Bustamante's view is the announced changes are about, “preserving incentives rather than creating new ones”.

 

“These reforms help maintain the status quo for risk taking.” 

 

Maintaining those incentives is becoming increasingly important as other countries refine their tax settings to attract founders, talent and investment capital.

 

Why start-ups are different

 

Bustamante says start-ups operate under a very different model to other common investments.

 

“Start-ups typically begin with little to no valuation, or cost base, but as intellectual property is developed and commercialised, valuations can increase exponentially,” he explains. 

 

This is critical when it comes to tax, since “indexation of the initial cost base does little to offset inflation, let alone compensate for risk taking.”

 

By contrast, assets like housing or listed shares have clear market prices when they are bought. Indexing those values helps ensure tax is paid on real gains, after inflation is taken into account. 

 

Start-ups do not have that same starting point, which means the tax system plays a different role in shaping incentives.

 

Keeping talent and innovation in Australia  

 

Australia has consistently produced high-quality start-ups despite its smaller market and distance from major capital hubs.

 

Bustamante sees this as an attempt to protect that position. 

 

“These are important changes. Australia has consistently punched above its weight in innovative start ups,” he says, pointing to companies such as Canva, Atlassian and Cochlear.

 

Alongside other SME measures, including loss refundability start-ups and expanded venture capital incentives, the reforms incentivise healthy risk-appetite.  

 

“Combined with other budget measures, they strengthen incentives at the margin for founders and investors to take on risk,” he says.

 

Ultimately, the reforms are designed to influence three important decisions: 

 

1. How attractive it is to start a business
2. Whether founders stay and scale locally 
3. How investment flows into new ideas

 

As other countries refine their tax settings to attract high-growth businesses, Australia faces growing competition to retain entrepreneurial talent and investment. 

 

The proposed concessions are designed to make the country a more attractive place to start, fund and scale a business.