Fintech Australia has flagged that the government's proposed changes to capital gains tax concessions for startups risk sidelining fintech firms, potentially threatening a sector that plays a significant role in Australia’s economy.
- Proposed CGT changes threaten fintech startups' eligibility for tax concessions.
- Fintech faces unique challenges requiring long-term investment and talent incentives.
- FinTech Australia proposes reforms to improve certainty and inclusivity in CGT rules.
What happened
In the May federal budget, the Australian government announced major reforms to capital gains tax (CGT). These reforms replace the existing 50% CGT discount for individuals, trusts, and partnerships with a cost-base indexation method and introduce a 30% minimum tax on capital gains accrued after July 1, 2027. Following feedback from the startup sector, Treasury proposed the Innovative Business CGT Concession (IBCC), a targeted measure intended to preserve the 50% discount for shares and options in qualifying innovative startups.
Despite this concession, FinTech Australia submitted a detailed response to the Treasury consultation paper highlighting that almost all fintech startups are likely to be ineligible for the IBCC under current criteria. The sector, which generates $13.6 billion in direct value for Australia's economy, risks being uniquely disadvantaged by rules designed for more traditional startups.
Why it matters
Fintech companies face distinctive challenges including heavy regulation, high capital intensity, slow scale timelines, and fierce competition for skilled talent from established financial institutions. Unlike many startups, fintech ventures need consistent long-term capital and the ability to offer employee equity to attract and retain talent. The exclusion from the IBCC could limit access to investment and undermine employee incentives, putting the survival and growth of fintech startups at risk.
Additionally, the lack of clarity and retrospective determination of whether a startup qualifies as 'innovative' creates significant uncertainty for fintech founders, employees, and investors. This uncertainty may dampen market confidence, deter investment, and slow sector development, impacting Australia's wider innovation ecosystem and job creation.
What to watch next
FinTech Australia has provided ten recommendations to Treasury, including raising the turnover threshold from $50 million to $75 million, extending the company age limit beyond five years, indexing monetary thresholds, and introducing a UK-style reinvestment deferral scheme instead of a lifetime cap on gains. It also calls for a more objective innovation test, prospective eligibility, and upfront binding rulings to enhance certainty.
The government’s response to these recommendations and whether adjustments to the IBCC will be made to accommodate fintech startups will be crucial. Stakeholders will also monitor whether similar provisions will be adapted for other sectors with comparable scaling challenges, such as biotech and deep tech, which face long-term capital demands and development cycles.