The Albanese government has released exposure draft legislation, including the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026, covering the Research and Development Tax Incentive and a new Innovative Business Capital Gains Tax Concession. The package is intended to support start-ups, innovation and investment, while improving fiscal sustainability. However, founders, investors and industry groups have raised concerns that some proposed restrictions could weaken Australia's innovation ecosystem.
Key Changes to the Research and Development Tax Incentive
The draft legislation, which applies to income years starting on or after 1 July 2028, lifts the refundable R&D offset rates by up to around 50 per cent for core R&D and reduces the intensity threshold to 1.5 per cent. It also raises the non-refundable maximum expenditure threshold to $200 million and the refundable turnover threshold from $20 million to $50 million. At the same time, the minimum eligible spend increases from $20,000 to $50,000, and supporting activities will no longer qualify.
Access to the refundable offset would generally be limited to firms operating for less than ten years. Biotechnology and medical technology firms would receive a 15-year access period because of longer regulatory and clinical development timelines. The government estimates this biotech and medtech extension will cost revenue about $60 million over the forward estimates, while the broader changes are expected to increase R&D by young firms by around $400 million per year.
Industry Reaction and Concerns
Life sciences leaders argue even 15 years may not be enough. Andrew Wilks of SYNthesis Bioventures described the extension as a small step forward that may favor foreign clinical-stage subsidiaries over early Australian preclinical companies. He said removing support for activities such as toxicology testing would be hugely detrimental to drug discovery programs.
Alex Simmons, chief executive of Kashcade, warned the changes could set the innovation ecosystem and investment back decades. He said the ten-year cliff would cripple industries beyond biotech, including manufacturing and physical science firms. Simmons added that most R&D-focused companies do not reach $20 million in revenue within ten years of starting out.
Julia Reisser of Uluu said continued R&D support beyond a company's first decade would be highly valuable for deep-tech companies. Uluu, which uses cultivated seaweed to replace plastic, is valued at more than $100 million and plans to keep its biotechnology team and core intellectual property in Australia. Rehan D'Almeida of Fintech Australia said most fintech research and development costs fall below $50,000, meaning the higher threshold will hurt the smallest innovators.
New Capital Gains Tax Concession
The draft legislation also creates the Innovative Business Capital Gains Tax Concession for early-stage investors. From 1 July 2027, eligible individuals and trusts, but not companies, super funds or foreign residents, can retain a full 50 per cent discount on gains from shares, options or convertible notes issued directly by an innovative start-up. Investors must hold the equity at genuine risk for at least three years, and there is no lifetime cap on eligible gains.
To qualify, a company must be incorporated for under 15 years, be based in Australia, have turnover below $50 million, and satisfy innovation and predominant-activity tests. The government estimates the concession will cost revenue approximately $160 million over the forward estimates. AusBiotech welcomed the CGT changes but said listed companies remain excluded, which is a concern for biotech firms that list early to fund clinical trials.
The draft package represents a significant shift in how Australia supports research-intensive start-ups and early-stage investors. While the government argues the reforms will make R&D support more effective and generate additional innovation, industry figures warn that restrictive time limits, higher thresholds, and the removal of supporting activities could weaken local ambition. Consultation is open until 28 September 2026, leaving room for further changes before the reforms take effect.