The 2026 Australian federal budget introduces sweeping tax reforms that will significantly impact how startup founders raise capital, manage equity, and plan tax strategies. Key changes to the capital gains tax system and R&D incentives come with transition timelines that create urgent restructuring considerations.
- 50% CGT discount replaced by cost base indexation and a 30% minimum tax from July 2027
- New refundable tax offsets for loss-making startups with turnover under $10m from July 2028
- Minimum 30% tax on discretionary trust income from July 2028 challenges common startup structures
What happened
The 2026 budget proposes the removal of the 50% capital gains tax (CGT) discount starting 1 July 2027, replacing it with a cost base indexation method for assets held at least 12 months. Critically, a new 30% minimum tax rate on capital gains will apply regardless of an individual’s marginal tax rate. Transitional provisions will apply for assets acquired before that date.
Additionally, from 1 July 2028, significant changes to the Research and Development Tax Incentive (R&DTI) will take effect, including refundable tax offsets for loss-making startups with turnover under $10 million, capped against employee-related tax liabilities. Discretionary trusts will also face a minimum 30% tax on trust income from this date, impacting their widespread use in startup shareholdings.
Why it matters
These measures will fundamentally disrupt how startups manage share options, equity incentives, and fundraising. Popular mechanisms like Startup Concession share plans and premium-priced options may lose appeal, with deferred tax options like Zero Exercise Price Options potentially becoming the default for employee incentives.
The introduction of minimum tax rates on capital gains and trusts creates complex compliance challenges and may reduce tax planning flexibility. The incentive for startups to hire employees instead of contractors is clear, with tax offsets linked to payroll-related obligations, potentially encouraging employment growth within Australian startups.
What to watch next
The government plans consultation focused on the CGT treatment of startups, which will be closely watched by founders and advisors due to anticipated complexity and legal debate. The transitional rules for assets and the evolving application of new tax rates will likely generate disputes with the Australian Taxation Office (ATO).
Companies are advised to proactively reassess their R&D strategies and equity structures before the changes take effect, as the reforms provide a clear planning horizon. Observing how these reforms influence startup capital raising, employee incentives, and the use of discretionary trusts will be critical for future tax strategy and structuring.