CGT Carve

"Complex rules to carve out startups from the capital gains tax changes announced in the May Federal Budget will make it too hard for companies to actually qualify," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.

"We welcome the need for the Innovative Business CGT Concession (IBCC), which will ensure Australia does not lose ground in the global competition for innovative startups due to adverse changes to CGT.

"However, many genuinely innovative startups will fail to qualify under the strict criteria, while those that do will be unnecessarily burdened with administrative requirements and behavioural distortions.

"A claimant would need to meet nine criteria – many of which are subjective and vague – which will lead to very narrow eligibility and significant regulatory burden and uncertainty.

"Those nine criteria will add administrative complexity, exclude companies unintentionally, introduce ambiguity, exclude investors who have previously claimed, distort behaviour and incentivise against growth.

"These complex criteria work against the very objective of the scheme: to shield innovative startups from the higher taxes being imposed as part of the CGT reforms.

"It does opposite to what should be the key principle behind tax reform: simplicity and less complexity.

"Similar problems bedevilled a related scheme – the Research and Development Tax Incentive – which the Government's own SERD inquiry recommended simplifying to ensure access for small businesses.

"We recommend the Government does the same for startups – adopt simpler and more specific eligibility rules for the CGT exemption.

"While the rationale remains sound for the IBCC, the overly complex and narrowly proposed qualification means it won't deliver on its objectives," Mr Willox said.