Response to Capital Gains Tax Reforms – Arrangements for Innovative Start-Ups Consultation Paper

This submission responds to Treasury’s consultation paper on arrangements for innovative start-ups under the 2026 capital gains tax (CGT) reforms, which would replace the 50% CGT discount with cost-base indexation and a 30% minimum tax from 1 July 2027 and offer an Innovative Business CGT Concession for shares issued by companies under 10 years old. Informed by member consultation, Research Australia maintains that the reforms would deepen the ‘valley of death’ for health and medical research and innovation, a sector with more than 1,400 biotech companies and roughly $10.5 billion in annual research spending but thin venture capital. It cites falling gross expenditure on R&D (1.69% of GDP in 2023–24, down from 1.88% in 2015–16), and more generous settings in South Korea, Japan, the United Kingdom and Canada. Answering the consultation questions, it supports the $50 million turnover cap but recommends the age limit to be extended to at least 15 years for biotech, medtech and deep tech, noting that a Phase 1 asset takes on average 10.5 years to reach approval, with eligibility based on objective criteria such as TGA or FDA pathways, MRFF funding or R&D Tax Incentive eligibility. It also recommends binding determinations or an objective checklist in place of self-assessment, exceptions or rollover for involuntary sales within the five-year holding period, a higher or per-company cap in place of the $10 million lifetime cap, clarification of transition dates and alignment with the Early-Stage Innovation Company framework.