VCs fear ‘super complicated, bureaucratic’ rules are putting startup tax breaks at risk

VCs fear ‘super complicated, bureaucratic’ rules are putting startup tax breaks at risk

Three Treasury consultations covering tax breaks for startups and innpovative businesses closed on Monday, with investors warning key eligibility and compliance issues remain unresolved.

Australia’s startup investors are warning that complex eligibility tests could make the government’s new 50% capital gains tax concession for early-stage startup investment unworkable, despite Treasury retreating on several of the proposal’s most contentious elements.

The warning comes after consultation closed on Monday on three separate tax reforms affecting startups and venture capital: the Innovative Business CGT Concession, expanded venture capital tax incentives and changes to the Research and Development Tax Incentive.

Treasury has already scrapped the proposed $10 million lifetime cap on the IBCC, cut the minimum holding period from five years to three and extended the 15-year eligibility period to all companies following an earlier round of consultation.

But investors say the government has left the hardest question unresolved: which startups count as sufficiently “innovative” to qualify.

The Australian Investment Council estimates the test, as currently drafted, would exclude more than half the companies in the portfolios of some of Australia’s largest venture capital firms.

Side Stage Ventures general partner Ben Grabiner said the government had responded to industry concerns over the headline settings but created a highly prescriptive eligibility regime.