Australia’s proposed capital gains tax reforms have prompted warnings from the fintech sector that changes designed around housing and tax fairness could have wider consequences for startup investment, employee equity and early-stage company formation.
The Budget package puts Australia’s tax treatment of investment returns back into the political spotlight. Under the proposed reforms, the current 50% capital gains tax discount would be replaced with cost-base indexation, alongside a 30% minimum tax on capital gains from 1 July 2027.
The changes sit alongside a separate move to limit negative gearing benefits for residential property investors to new builds. Existing property holdings would be protected under transitional arrangements, while losses on established residential properties bought after Budget night would no longer be deductible against wage income.
In Treasury material, the reforms are presented as part of a wider attempt to support home ownership, reduce pressure on first-home buyers and make the tax system more neutral across asset classes. The CGT changes would only apply to gains accruing after 1 July 2027, and investors in new builds would be able to choose between the existing 50% CGT discount and the new indexation model.
However, the same material acknowledges the reforms may have implications beyond housing. Given the ‘unique characteristics’ of the tech and startup sector, the government said it will consult on how the CGT changes interact with incentives for investment in early-stage and startup businesses. That carve-out has become a key focus for fintech firms, whose funding models often rely on long-term equity upside rather than near-term cash returns.
Startup incentives under scrutiny
FinTech Australia, the industry body representing Australia’s fintech sector, said the uncertainty around the proposed CGT changes could have an immediate effect on startups’ access to funding, warning that founders, capital and talent may move offshore if the reforms weaken the long-term value of equity participation.
“These proposed changes risk materially weakening the incentives that underpin startup formation and early-stage investment in Australia,” said FinTech Australia CEO Rehan D’Almeida.
“The startup ecosystem depends on individuals taking extraordinary levels of financial and career risk. Founders often spend years building businesses without stable income, investors deploy capital into extremely high-risk ventures, and early employees accept lower cash salaries in exchange for equity upside.”
The industry body said employee share ownership plans are especially important for startups competing for skilled technology workers in a global market. D’Almeida warned that reducing the value of long-term equity participation could make Australian startups less competitive internationally.
“There is a real risk these changes push capital, talent and ideas offshore,” he said.
Budget measures welcomed, but concerns remain
FinTech Australia’s response was not wholly negative. The organisation welcomed several Budget measures, including continued funding for the Consumer Data Right, major Digital ID funding, expanded venture capital settings, regulatory sandbox reforms and continued work on payments modernisation, tokenisation and digital money.
It also welcomed proposed changes to Venture Capital Limited Partnership and Early Stage Venture Capital Limited Partnership settings, which it said could improve access to growth capital for scaling fintechs. The Budget also includes plans to reinstate and expand loss carry-back arrangements, a measure FinTech Australia said could help startups manage cash flow while investing in growth, compliance, product development and talent.
However, the group raised separate concerns about proposed changes to the Research and Development Tax Incentive. These include increasing the minimum claim threshold from $20,000 to $50,000 and removing supporting activities from eligible R&D expenditure.
D’Almeida said fintech innovation often involves software development, compliance infrastructure, data systems and embedded experimentation that may not fit neatly within traditional R&D definitions.
“There is a real risk that some legitimate fintech R&D activity may no longer qualify, particularly for smaller startups and emerging firms,” he said.
“Combined with the higher minimum threshold, these changes could see a number of smaller fintechs miss out on support altogether at precisely the stage where early innovation support matters most.”
Wider reform debate
The CGT and negative gearing changes have become one of the most politically sensitive elements of the Budget, partly because they touch both housing affordability and investment behaviour. Under the proposed reforms, negative gearing would be restricted to new residential builds, while the existing 50% CGT discount would be replaced by inflation-based indexation and a minimum 30% tax rate on capital gains.
The measures have been presented by the government as part of a broader attempt to support first-home buyers and reduce the tax system’s reliance on wage earners. However, critics have raised concerns about the potential impact on investment incentives, with fintech groups warning that the effects could extend beyond property and into startup funding.
For FinTech Australia, the issue is less about housing policy than the treatment of risk capital. The industry body argues that founders, early employees and investors often accept years of financial uncertainty in return for future equity upside, and that any weakening of those incentives could make Australia less attractive as a place to build and fund technology companies.
According to Deloitte Access Economics research commissioned by FinTech Australia, the country’s fintech sector contributes $13.6 billion in direct value added to the Australian economy and supports more than 109,000 jobs nationally. The same research estimated the sector could contribute up to $37 billion to GDP by 2035 with the right policy settings.