Which startups still get the 50% CGT discount after July 2027?

The startup CGT concession, formally the Innovative Business CGT Concession (IBCC), is a proposed 50% CGT discount for gains on equity in eligible innovative Australian startups. It would apply from 1 July 2027, when the general 50% discount ends. The rules are still in exposure draft and may change before Parliament passes them.

The Government has released draft laws for the IBCC, the long-promised carve-out for startups from the 2026 Budget's capital gains tax changes. If you are a founder, an early employee with equity, or an angel investor, it could affect what you keep when you eventually sell.

When the Budget proposed removing the 50% CGT discount, the startup community pushed back hard. Startups usually begin with shares worth almost nothing and, if things go well, grow fast. A tax change that hits that kind of gain hardest risks making it harder to raise money and attract talent. The draft carve-out is the Government's answer to that concern.

This article is general information only, not legal or tax advice, and the rules are still in draft.

How the Budget changed capital gains tax for startups

From 1 July 2027, individuals, trusts and partnerships lose the flat 50% CGT discount. That change is already law: the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026.

In its place, the cost base of an asset is indexed for inflation, and a 30% minimum tax applies to capital gains. For most investments, that means a smaller tax break on the growth in value.

For startups, the problem is the starting point. Founders often take up shares for a few cents, or for nothing. Indexing a cost base close to zero adds almost nothing, so most of the gain on a successful exit would be taxed. The old 50% discount was far more generous for that kind of gain.

What is the Innovative Business CGT Concession?

In short, the IBCC keeps a 50% CGT discount alive for equity in qualifying innovative startups, even after the general discount ends. Treasury released the exposure draft legislation, explanatory materials and a draft legislative instrument on 11 September 2026.

The concession would apply to gains on what the draft calls "IBCC assets". These are interests that are, or can become, shares in a qualifying company. That includes ordinary shares, options and some convertible notes. The explanatory materials suggest SAFEs will often be covered too, depending on how each one is drafted.

To count, the draft says the equity generally needs to:

• be issued directly by the company to you, not bought from another shareholder

• be issued while the company qualifies as an "IBCC company"

• be genuinely at risk, with no arrangement protecting its value

• be held for at least three years, with some exceptions such as a takeover of the whole company

Gains that qualify would also sit outside the new 30% minimum tax on capital gains. The concession is not available to companies, super funds or foreign residents, who are taxed under different rules anyway.

Which companies may qualify for the startup CGT concession?

Under the draft, a company has to pass six tests to be an IBCC company. The list below summarises them in plain terms.

• Age. Incorporated in Australia for less than 15 years, and not part of an older group

• Size. Unlisted, with aggregated turnover of no more than $50 million in the prior income year

• Australian connection. Australian resident, with at least half its people working mainly in Australia and at least half its assets here

• Innovation. Genuinely focused on commercialising a new or significantly improved product, process, service or method, with real growth potential beyond a local market

• Main activity. Most of its assets, staff or income tied to that commercialisation work, expected to continue for the next five years

• Registration. Registered as an IBCC company with the Department of Industry, Science and Resources

Two points stand out. First, registration sits with the Industry Department, not the ATO, and registered companies must lodge an annual report. Miss it and registration can be suspended, then cancelled, which could affect every investor holding the company's shares.

Second, the innovation test is a judgement call. A draft legislative instrument sets out guidance and possible safe harbours, so companies can more easily check whether they meet it.

Does it cover shares founders already hold?

This was the biggest worry after the June consultation paper, which suggested only equity issued from 1 July 2027 would be covered. The exposure draft goes further: shares and options issued before that date can qualify too, if certain conditions are met.

Broadly, the company needs to register before the shares are sold, and it needs to have:

• been incorporated for less than 15 years on 30 June 2027

• been unlisted when it registers (unless it was already listed before 11 September 2026)

• met the Australian residence, staff and asset tests when it registers

• had turnover under $50 million, and met the innovation and main-activity tests, in the 2025-26 income year or its first year if incorporated later

In practice, this means many existing startups could bring their founders' shares within the concession. But it depends on the company registering, and on its history meeting the tests. That is worth keeping in mind before any restructure, share sale or capital raise.

Employees with equity and early investors

The concession is not just for founders. The draft also covers employees holding equity through an employee share scheme, including shares acquired by exercising a qualifying option or converting a qualifying note. Special rules apply to employee share trusts and to beneficiaries of trusts that hold startup shares.

For angel and early-stage investors, the direct-issue rule matters most. The discount is aimed at money that goes into the company itself. Shares bought from another shareholder on a secondary sale would not qualify, which may change how later-stage and secondary investors look at a deal.

The draft also extends the concession to carried interest earned by managers of eligible venture capital funds, to the extent the gain relates to qualifying startup equity.

Grey areas: fintech, proptech and how you hold your shares

The main-activity test excludes a list of activities, including property development, banking, providing capital, leasing, insurance, passive investment and gambling. However, building technology for use in finance, insurance or investment is not itself excluded.

That distinction will matter a great deal to fintech and proptech startups, and where the line falls has not been tested. A platform that helps lenders assess risk looks different from a business that lends money itself.

How founders hold their shares matters too. Many founders hold equity through a family trust. The Government has separately introduced a Bill for a 30% minimum tax on discretionary trusts, proposed to start from 1 July 2028, and the draft has special rules for trust beneficiaries. Changes to the R&D Tax Incentive from 1 July 2028 are also out in draft. These measures interact, so it is worth looking at them together rather than one at a time. Our piece on why timing decides whether a restructure works covers how the 2027 and 2028 changes are pushing owners to review their structures.

Key dates and what is still uncertain

The IBCC is still a draft. Consultation closed on 28 September 2026, and the final Bill has not yet passed Parliament.

• 12 May 2026. 2026-27 Budget announces the CGT changes

• 18 June 2026. Treasury consultation paper on a startup carve-out

• 26 June 2026. CGT changes become law (Royal Assent)

• 11 September 2026. IBCC exposure draft released

• 28 September 2026. Consultation on the IBCC exposure draft closed

• 1 July 2027. General 50% CGT discount ends; IBCC proposed to start

• 1 July 2028. Proposed start of the 30% minimum tax on discretionary trusts

Several things could still change before the rules are final:

• the exact wording of the innovation test and any safe harbours

• how the direct-issue rule applies to managed funds and other widely held trusts, which the Government has said it is still considering

• where the line falls for fintech and proptech businesses

• the registration and reporting process, and how strictly it is applied

Questions founders may want to raise with their advisers

Every startup's position is different, so there is no single right move. But the draft raises some common questions that founders, boards and investors may want to work through with their lawyer and accountant:

• Records. Is the cap table up to date, with clear records of when and how each share or option was issued? The direct-issue and three-year rules make this history matter.

• Eligibility. Does the business look likely to meet the innovation and main-activity tests, both now and in 2025-26?

• Instruments. Are SAFEs, convertible notes or options drafted in a way that makes their legal character clear?

• Timing. Is a share sale, secondary transaction or exit planned around 1 July 2027?

• Structure. Are shares held personally, through a company or through a family trust, and how do the trust changes interact?

• Employees. Does the employee share scheme documentation still work well under the new rules?

None of these require action today, and the rules may change before they are final. They are simply the areas where the draft is most likely to make a difference.

Common questions

Will founders still get a CGT discount after 1 July 2027?

Only on equity that qualifies. The general 50% discount ends on that date for individuals, trusts and partnerships. Under the draft, founders holding shares issued directly by a registered IBCC company, and held for at least three years, would keep a 50% discount on the gain.

Is the IBCC law yet?

No. It is exposure draft legislation. Consultation closed on 28 September 2026, and the final rules may change before Parliament passes them.

Does the startup CGT concession cover shares I already own?

Possibly. The draft's transitional rules can cover shares and options issued before 1 July 2027, provided the company registers and meets the eligibility tests.

Who decides whether a company qualifies?

The Department of Industry, Science and Resources, which would register companies and could issue rulings binding on both the Department and the ATO.

Are other startup tax concessions changing too?

Yes. Changes to the R&D Tax Incentive from 1 July 2028 are out in draft, and a separate Bill proposes a 30% minimum tax on discretionary trusts from the same date. Founders holding shares through a family trust will want to look at these alongside the IBCC.

Talk to Zed Law

Zed Law works with founders and scale-ups on cap tables, share schemes, capital raises and restructures. If you want to know how the draft rules sit with your cap table and how your shares are held, book a fifteen minute call. We'll tell you where the draft is likely to bite and whether it is worth doing anything before the rules are final.

This article is general information only and does not constitute legal, tax or financial advice. It reflects exposure draft legislation as at 2 November 2026, which may change. You should seek advice specific to your circumstances, including from a registered tax agent, before acting.