Background

Following Royal Assent of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 on 26 June 2026, from 1 July 2027 the 50% capital gains tax (CGT) discount for individuals, trusts, and partnerships is replaced with cost base indexation, and a 30% minimum tax on capital gains applies.

Following the 2026-27 Budget, the Government undertook to consult on the treatment of early stage and start-up businesses, recognising that these businesses often hold assets that are difficult to value and can grow rapidly from a low-cost base. A consultation paper was released on 18 June 2026, and this exposure draft is the result.

The concession

A new 50% discount applies to a discount capital gain where:

• the CGT event happens on or after 1 July 2027 in relation to an IBCC asset
• the asset is not a disqualified asset at the time of the CGT event
• the taxpayer has not chosen cost base indexation instead
• the taxpayer is not a company, complying superannuation entity, or foreign resident.

Gains that attract the innovative business CGT concession (IBCC) discount are excluded from the minimum tax on capital gains and from the deemed sale and reacquisition rules operating across 30 June and 1 July 2027. If indexation is chosen instead, those rules apply in the ordinary way.

IBCC assets

An IBCC asset is a CGT asset that is, or can become, an equity interest in a company, such as shares, options (including warrants) to acquire shares, and convertible notes that are not debt interests. The explanatory materials note this will often capture SAFEs, depending on the legal character of the instrument.

The asset must also:

• be at risk – there must be no arrangement maintaining the value of the asset or its returns
• be issued directly by the company to the investor, excluding secondary market acquisitions
• be issued at a time when the company was an IBCC company
• be held for at least three years, unless the interests are acquired under a takeover or similar scheme covering all or substantially all interests.

Modified rules apply for beneficiaries of trusts and members of AMITs, employee share trusts, shares acquired on exercise, or conversion of a qualifying option or note, most replacement asset rollovers (excluding Division 122 and scrip for scrip), and assets passing on death or relationship breakdown.

Carried interests

The discount extends to CGT event K9 gains from carried interest entitlements of general partners in VCLPs, ESVCLPs, and AFOFs, and limited partners in VCMPs, to the extent the gain is reasonably attributable to an IBCC asset. The direct issue and three-year holding requirements are tested at the level of the relevant partnership.

IBCC companies

A company must satisfy the following conditions:

The Industry Secretary may specify safe harbour conditions for the innovative company test by legislative instrument. Satisfying a safe harbour does not make a company an early-stage innovation company for any other purpose.

Ineligible activities

The predominant activity test excludes activities comprising of:

• property development or land ownership
• banking
• provision of capital
• leasing
• factoring and securitisation
• insurance
• infrastructure construction or acquisition
• passive investment directed to interest, rents, dividends, royalties, or lease payments
• gambling, tobacco, and vaping technology outside the harm minimisation carve-outs.

Importantly, developing technology for use in relation to finance, insurance, or passive investment activities is not an ineligible activity.

Registration, reporting & disqualification

Registration is administered by the Industry Secretary (currently the Department of Industry, Science and Resources) rather than the ATO, and may be backdated where the company notifies the Secretary and affected interest holders.

Registered companies must lodge annual reports. Failure to do so results in automatic suspension, and cancellation if the report remains outstanding at the end of the income year in which it was due. Registration may also be cancelled for fraud, serious misrepresentation, or reliance on untrue, incorrect, or incomplete information, in some cases with the company treated as never having been registered.

An IBCC asset becomes a disqualified asset where the company ceases to meet the predominant activity test, its registration ceases to have effect, or the Secretary makes a disqualification determination. A company that has met the predominant activity test for at least 20 years is treated as not having ceased to meet it.

Section 170 of the Income Tax Assessment Act 1936 will not prevent amendment of assessments to give effect to suspension or cancellation of registration, effectively removing the period of review for these matters.

Rulings by the Industry Secretary

New Division 363 of Schedule 1 to the Taxation Administration Act 1953 empowers the Industry Secretary to issue public and private rulings on whether a company is an IBCC company and whether an asset is a disqualified asset.

A private ruling given to a company also applies to entities holding CGT assets issued by that company and to beneficiaries of trusts holding such assets. Rulings bind both the Secretary and the Commissioner, and the Commissioner is excluded from ruling on those provisions. Decisions are subject to internal review and then review by the Administrative Review Tribunal.

Transitional rules

Assets issued before 1 July 2027 can qualify where the company registers before the relevant CGT event and, broadly, the company:

• was incorporated for less than 15 years on 30 June 2027, and is not an affiliate of an older company
• is unlisted at registration, unless it was listed before 11 September 2026, being the date the exposure draft was released
• satisfies the Australian residence, staff, and asset tests at registration
• had aggregated turnover under $50m and met the innovative company and predominant activity tests in the later of the 2025-26 income year or the year of incorporation.

SW comment

The IBCC is a meaningful carve-out from the CGT reform package, but it is a narrow and heavily administered one. Three features warrant particular attention.

• First, the direct issue requirement confines the concession to primary capital contributions. Secondary market acquisitions are excluded, which will materially affect later stage investors and secondary funds.
• Second, the treatment of widely held trusts remains unresolved. The explanatory materials expressly state that the Government is still considering how the direct issue requirement should apply to managed investment trusts, AMITs, and other widely held trusts, having regard to proportionate compliance impacts. Fund managers should treat this as a live issue.
• Third, the ineligible activities list is broad. Banking, provision of capital, leasing, factoring, securitisation, and insurance are excluded, as is property development. The carve-back for technology developed for use in those activities is the critical distinction for fintech and proptech businesses, and its boundaries are untested.

The shift of gatekeeping to the Industry Secretary, combined with annual reporting, automatic suspension, and the removal of the period of review, places significant ongoing compliance weight on investee companies, with the consequences borne by their investors.

How SW can help

SW’s Tax Consulting team can assist with:

• assessing eligibility under the proposed IBCC regime
• reviewing existing investment and fund structures
• preparing submissions to Treasury during consultation
• advising founders, employees, venture capital investors, and fund managers
• modelling the interaction of the IBCC with the broader CGT reform package.

For further information, please contact your SW advisor.

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Our team have specialised capabilities for every step of your journey, with long-term experience working with both high-growth businesses and successful entrepreneurs.

Our business advisory team will work with:

• to ensure your IP is secure
• your regulatory compliance is in place for your chosen sector
• you have a solid business plan that is practical, includes all required areas including marketing and budgets
• assist with a supportive network of advisors
• work with our R&D team to put in place an appropriate structure and have the right financial substantiation in place to access R&D and other tax incentives
• work through the process of appropriate business software to support your growth requirements
• work with you to build your KPIs and margins, with transparency of expenditure
• engage with potential investors or future board members
• when required, work through your exit strategy
• act as a mentor/coach on your journey and ask you the critical questions along your entire journey.

How we can help you:

Financials

• customised reporting & dashboards​
• budgeting & cash flow forecasting​
• finance management​
• finance team support​
• financial strategy​.

Tax considerations

• Federal Taxes (Income Tax & GST)​
• Statement Tax (Payroll Tax & Duties)​
• employment matters​
• tax advice​
• R&D and grant incentives​.

Financial data

• general purpose financial statements​
• quarterly cash flow statements​
• technical disclosures & papers​
• audit management​.

Governance, compliance and outsourced solutions

• automation & streamlining​
• internal controls & approvals​
• best practice processes​
• payroll & team management​
• reporting software​.

Specialised outsourced solutions

Cloud accounting​

The cloud is a platform to make data and software accessible online anytime, anywhere, from any device. Working in the cloud will give you a better overview of your finances and improve collaboration with your team and advisors and support applications for finance via provision of timely information. We can assist with financial management and reporting, software and processes, and regulatory compliance.​

The post Business advisory appeared first on SW Accountants & Advisors.

I regularly assist foreign businesses and investors entering the Australian market, providing initial structuring and setup advice, strategic tax planning, ongoing operational advice, and fully outsourced accounting, taxation, and corporate secretarial compliance services.

I advise Australian and foreign-owned businesses across a range of industries, including hotels and hospitality, financial and professional services, start-ups, information technology, property and construction, and wholesale and distribution.

I have also developed expertise in providing strategic business and outsourcing services to major hotel and hospitality groups in Australia. My experience includes assisting these clients with due diligence assignments, cross-border structuring advice, funding negotiations, post-acquisition settlement reviews, and outsourced CFO services involving responsibility for full finance and compliance functions.

I am fluent in English, Chinese, Malay, and Indonesian. My multilingual skills and ability to bridge language and cultural barriers have been invaluable when working with businesses from around the world, including China, the United States, Europe, and Southeast Asian countries such as Malaysia, Singapore, and Indonesia.

My experience includes:

• assisting with the successful acquisition of a major five-star hotel for A$85m
• assisting with the divestment of the Australian business operations of a multinational group for A$45m
• delivering strategic tax restructuring solutions, including asset protection and succession planning, for a high-net-worth family group
• assisting start-ups with strategic planning and structuring, as well as considerations relating to the Research and Development Tax Incentive and the Early Stage Investor Tax Incentive.

I am a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

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Start-up tax concessions were introduced to the ESS rules in 2015, and companies that qualify for the ESS start-up concessions are finding that ESS can help with both their cash flow hurdles and staff remuneration.

Additionally, while a formal market valuation for the share price can be costly and time-consuming, companies qualifying for ESS start-up concessions can utilise an alternative, ATO-approved method for valuing unlisted shares, based on the Net Tangible Asset (NTA) position of the company.

This is great news in times of cash flow issues, but it doesn’t come without risk. The ESS plan you choose and the underlying tax structuring is essential to making the ESS work for everyone.

How ESS benefits staff

Once the business eligibility requirements are met, the primary advantage of an ESS start-up plan for employees is that the taxing point for any options or shares granted will be deferred to the date that the underlying share is sold.

This prevents employees from being subject to upfront taxation in Australia. The ESS interest falls into the Capital Gains Tax (CGT) regime, so the employee will not pay taxes until the ultimate disposal of the underlying share. This means, no income tax for employees:

• at time of grant
• when options or shares vest
• on exercise or disposal restrictions lifting.

Eligible employees will also be able to apply the CGT 50% discount to any gains made between the time of grant and sale, where they held the ESS interest for greater than 12 months. For employees, this is a very attractive offer, as it removes any potential risk of the share value dropping between the date of grant and disposal (i.e. where they would potentially be in the situation of upfront taxation followed by a subsequent loss).

There are several advantages for companies implementing and using ESS plans:

• companies can use an ATO-approved ‘safe-harbour’ valuation method for valuing unlisted shares
• attraction of new key talent, engagement and retention of key employees
• rewards past performance but geared with a future focus
• provides an improved and tax effective remuneration package
• offers tax deferral opportunities.

ESS plans – structure is vital

To ensure business objectives are met, it is critical to seek professional advice before setting up an ESS plan. We have worked with several companies that have not, and there are complex issues to work through retrospectively.

One of these is a failure to meet the business’s reporting obligations, and unexpected income tax consequences for employees, such as upfront taxation. Unexpected upfront taxation is something that we often see when an ESS plan has been poorly drafted, and can result with employees being left to fund a tax liability before they are able to access the underlying shares or receive any sale proceeds.

ShineWing Australia has assisted companies at various stages of the business cycle to navigate ESS requirements and implement effective ESS plans, including:

• Choosing the right ESS plan (e.g. shares, options, rights, start-up, etc)
• Facilitating the drafting of the ESS plan rules and the offer letters to employees
• Understanding the employer and employee tax implications and reporting obligations
• Communicating with the employees to obtain maximum engagement
• Assistance with annual compliance and ensuring that ATO reporting obligations are met.

Professional experience in implementing and managing ESS plans for companies, in particular ESS start-up plans, is absolutely key to creating benefits for both the business and the employee.

Contact us

To ensure you get the essential elements right, from the start, contact our team to arrange a discussion on how an ESS plan may benefit your company.

The post Employee Share Schemes for start ups appeared first on SW Accountants & Advisors.