The Australian Government has released draft legislation to implement business tax incentives that support innovation, investment, and entrepreneurship. The exposure drafts outline the Innovative Business Capital Gains Tax Concession, updates to the Research and Development Tax Incentive, and related measures for venture capital, electric vehicles, and Pay As You Go instalments. Treasurer Jim Chalmers said the package would support small businesses and start-ups, including those in biotechnology and medical technology, while delivering certainty for investors.
Innovative Business Concession Details
The draft legislation confirms that companies must have been incorporated for fewer than 15 years and must not exceed $50 million in aggregate turnover to qualify for the Innovative Business Capital Gains Tax Concession. Eligible equity must be held for three years before being sold, and investors will not face a cap under the arrangements, which is intended to support simplicity and repeat investment. The measure is estimated to cost revenue about $160 million over the forward estimates period, with final costs to be confirmed in the next budget update.
Self-Assessment and Investor Impact
The government will also release a draft legislative instrument to help existing companies self-assess whether they satisfy the innovation requirements, which relate to commercialising a genuinely innovative product, process, service, or method. The reforms are designed so early investors in innovative start-ups that begin with a low or zero cost base still receive a significant discount on a future capital gain. Officials said this would support the continued growth of Australia's start-up and venture capital ecosystem.
Research and Development Tax Incentive Reforms
The draft legislation also provides further detail on reforms to the R&D Tax Incentive from 1 July 2028. The changes are designed to increase core R&D offsets by up to around 50 per cent, lower the intensity threshold on the non-refundable offset to 1.5 per cent, and raise the maximum expenditure threshold to $200 million. Each dollar of tax offset is expected to generate around 20 per cent more business R&D, while R&D by young firms is projected to increase by about $400 million per year.
Longer Access for Biotech and Medtech
Access to the refundable tax offset will generally be limited to firms operating for less than 10 years, although the turnover threshold will increase to $50 million to allow successful firms to retain support for longer as they scale. Biotechnology and medical technology firms will be able to access the refundable offset for up to 15 years, recognising their longer regulatory approval and product development timeframes. This targeted support is estimated to cost revenue $60 million over the forward estimates period.
Additional Measures in the Draft Package
The exposure draft materials also include legislation to expand venture capital tax incentives from 1 July 2027 to help unlock patient capital for young and expanding firms, with most program caps unchanged since the 2000s. The package includes changes to fringe benefits tax settings for electric vehicles to make the treatment more fiscally sustainable and targeted. Taxpayers would also gain flexibility to report and pay Pay As You Go instalments monthly to better reflect real time business and investment activity.
Consultation and Broader Reform
Treasury has published the exposure draft materials on its consultation hub and is inviting stakeholder feedback until 28 September 2026. The government thanked start-ups, investors, and community members for their input and said further submissions would help refine the implementation details. The tax reform agenda is being implemented in tranches, consistent with the process used for other large tax packages.
This draft package builds on existing reforms such as the permanent $20,000 small business instant asset write-off, changes to capital gains tax and negative gearing, and loss carry-back for companies with up to $1 billion in turnover. The government argues that the combination of start-up capital gains relief, better-targeted R&D support, and expanded venture capital incentives will lift innovation, investment, and economic resilience. Stakeholder submissions on the draft legislation will now shape the final design of the reforms before formal introduction.