The latest Federal Budget startup tax changes in Australia are among the most significant proposed reforms in decades, with major implications for founders, investors and scale-ups across capital gains tax and trust structures. Much of the public discussion has focused on housing and property investors. But founders, startup employees, angel investors and scale-up businesses should also be paying close attention.
The proposed changes to capital gains tax (CGT) concessions and discretionary trust taxation could materially affect how startup founders structure ownership, raise capital and plan exits.
Importantly, many of these measures are still proposals rather than enacted laws, but it is worth understanding these changes and considering how they may affect startups, even though we do not yet have all the details at this stage.
For founders and investors, this is a reminder that tax settings are not static. Structures that worked well over the last 10 years may not work as effectively over the next 10.
The Proposed CGT Changes
Replacement of the CGT discount
The headline measure is the proposed replacement of the current 50% CGT discount with an inflation indexation model from 1 July 2027. Importantly, this measure is set to apply broadly across most asset classes, not just property.
At present, individuals and trusts that hold an asset for more than 12 months generally receive a 50% discount on capital gains. That concession has long been relevant to startup investing because many founder shares, employee equity interests and angel investments are held for extended periods before an exit event.
Under the proposal, the 50% discount would be replaced with cost base indexation. In practical terms, only the “real” gain above inflation would be taxed.
Minimum tax on capital gains
Alongside that change, the Government has also proposed a 30% minimum tax on real capital gains.
For startup founders, this creates a more complicated equation.
Many startup exits involve significant paper growth over a long period. A founder who acquires shares at nominal value and exits after seven or eight years may currently expect the 50% discount to materially reduce the effective tax burden. Under the proposed model, the outcome may depend heavily on inflation levels over the holding period.
That creates uncertainty not only for founders personally, but also for investors modelling tax returns.
Impact on startup investment
There is, however, one cautiously positive signal for the startup sector specifically. The Government has committed to consult on the interaction between the CGT reforms and incentives for investment in early-stage and startup businesses, acknowledging the unique characteristics of the tech and startup sector. The details and timeline of that consultation process have not yet been released.
It may also affect the comparative attractiveness of Australian startup investment against overseas jurisdictions competing for venture capital. Startup investment already carries significant illiquidity and risk. If the post-tax upside narrows further, some investors may become more selective about where they deploy capital.
Why Trusts Matter To Founders
Proposed trust taxation changes
The second major measure is the proposed 30% minimum tax on discretionary trust income distributions from 1 July 2028.
Trusts remain common in Australian private business structures, particularly for family-owned businesses, investment vehicles and early-stage founder arrangements.
In the startup ecosystem, discretionary trusts are often used:
• to hold founder shares
• as investment vehicles for angel investors
• for family succession planning
• to distribute investment income flexibly
Intended policy impact
The proposed reforms are intended to reduce the effectiveness of income splitting through discretionary trusts.
For many founders, the immediate impact may not be catastrophic. Venture-backed startups are commonly structured through companies rather than trusts once institutional investment begins.
But the changes may still affect:
• pre-investment founder structuring
• passive investment entities
• family office investment vehicles
• exit planning
The Budget also flagged transitional rollover relief for businesses moving away from trust structures between 1 July 2027 and 30 June 2030. That is a practical acknowledgment that many businesses may reconsider existing structures if the reforms proceed.
Startup Concessions Remain Important
Existing concessions unchanged
One important counterbalance is that the Budget did not substantially alter existing startup-specific tax concessions. In fact, it expanded some. The Government announced expanded venture capital tax incentives from 1 July 2027, increasing the asset and fund size caps under the Early-Stage Venture Capital Limited Partnership (ESVCLP) and Venture Capital Limited Partnership (VCLP) programs to align with modern company valuations.
The Employee Share Scheme (ESS) regime remains intact. Early Stage Innovation Company (ESIC) concessions also remain available.
That matters because these concessions are still among the more internationally competitive parts of Australia’s startup tax system.
Additional business measures
For founders trying to attract talent without paying large salaries, ESS arrangements remain critical. Likewise, ESIC incentives continue to encourage early-stage investment by offering tax offsets and CGT concessions to eligible investors.
The Budget also included broader measures aimed at business investment and liquidity, including:
• the permanent $20,000 instant asset write-off for eligible small businesses (from 1 July 2026)
• expanded tax loss carry-back rules for eligible companies
• startup loss refundability measures for certain early-stage businesses in their first two years of operation (from 2028–29)
These measures suggest the Government is attempting to balance broader tax reform with targeted startup incentives.
Whether that balance succeeds is another question.
The Practical Issue for Founders
For many founders, the real issue is uncertainty.
Tax policy affects behaviour long before legislation commences. A founder considering whether to hold shares personally, through a trust, or through another investment vehicle now faces a moving policy landscape.
Likewise, investors negotiating long-term positions in Australian startups may begin factoring future CGT treatment into valuation and structuring discussions today. That does not mean founders should immediately restructure existing arrangements.
In many cases, the existing structure may still be appropriate, particularly where there are asset protection, succession or investor requirements driving the decision.
But founders should at least revisit:
• how shares are held
• whether trusts are still achieving their intended purpose
• the interaction with ESS and ESIC concessions
• succession planning arrangements
• likely exit scenarios
Importantly, many startup businesses evolve faster than their legal and tax structures do.
A structure established when the business was worth $500,000 can become problematic when the business is worth $50 million.
What Commentators are Saying About the Latest Federal Budget Startup Tax Changes in Australia
Commentary on the Budget has been sharply divided.
PwC partner, Alice Kase, described the reforms as “a fundamental shift in the Australian tax reform agenda”.
Some commentators have expressed that “this primarily weighs on prospective first home buyers” (The Guardian).
McCollough Robertson Lawyers have warned that any benefit to first home buyers will be offset by “additional complexity, significantly increased taxation and second and third order unintended consequences.”
Those concerns are unlikely to disappear during the consultation process.
Final Thoughts
For startups and scale-ups, the Budget is not simply a property tax story.
It is a reminder that tax settings influence founder behaviour, investor appetite and business structuring decisions across the innovation economy.
Some founders may ultimately decide the practical impact is limited. Others may reconsider how they hold equity, structure investments or plan exits.
Either way, the details of the legislation will matter far more than the headlines.
For tailored advice on how these Federal Budget changes may affect your startup, scale-up or investment structure, get in touch with the team at Allied Legal, where we stay across the latest tax, corporate and innovation policy developments to help founders make informed, strategic decisions.
This article is intended as general information only and does not constitute legal or tax advice. It does not create a solicitor-client relationship. Specific advice should be obtained for particular circumstances.
