The Albanese government’s proposed exemption for so-called “innovative companies” from recent capital gains tax changes has drawn strong criticism from Australian tech founders, investors, and venture capitalists, who argue the measures may hinder growth and encourage talent to leave the country.
The government introduced the carve-out following the controversial abolition of the 50 percent capital gains tax discount, which was scrapped five weeks earlier despite election promises to maintain it. Prime Minister Anthony Albanese and Treasurer Jim Chalmers proposed exemptions intended to support entrepreneurs and startups, but the conditions attached to the carve-out have raised concerns about complexity, fairness, and future investment climate.
Under the proposal, eligible companies must meet several criteria: a $50 million turnover ceiling, a five-year minimum holding period, and a $10 million lifetime capital gains exemption cap per founder. Critics say these limits are arbitrary and risk penalizing the most successful and fastest-growing startups. Ben Pfisterer, founder of Zeller, a payments company valued at over $1 billion, called for the government to remove the “innovative company” definition and associated caps, cautioning that these restrictions could stifle ambition and reduce hiring. Pfisterer highlighted the rapid growth of many artificial intelligence startups, which often exceed $50 million in revenue within months, making the turnover ceiling obsolete for today’s market.
Pfisterer and other critics also contended that the five-year holding period and lifetime exemption cap would discourage serial entrepreneurs from continuing to build businesses in Australia. “That is the cohort of people we most want to hold on to, because they are successful, proven good operators with knowledge and intellect that literally money can’t buy,” he said, emphasizing the risk of losing talent with proven track records.
Australia is currently recognized for its strong startup ecosystem, ranking first globally in terms of $10 billion companies produced per dollar invested, outperforming markets including the United States, Canada and India. Venture capital returns in Australia have averaged 24.4 percent over five years, nearly double that of the U.S. Some founders and investors assert that the carve-out targets precisely the kinds of companies that have driven this success.
Ben Grabiner, founding partner of Side Stage Ventures and leader of a working group comprising about 20 founders lobbying the Treasury, acknowledged the government’s recognition of earlier legislative errors but said the exemption introduced new complications. He pointed to the administrative burden startups face in proving eligibility—such as declaring their status on the issuance of shares, passing an 80 percent active assets test, and demonstrating scalability and global potential. These requirements pose challenges for early-stage companies with limited resources.
Grabiner also expressed skepticism about the government’s decision to avoid extending capital gains tax changes to property, suggesting the carve-out effectively distorts the market by creating uneven tax treatment between asset classes. He criticized comparisons to the U.S. Qualified Small Business Stock regime, calling the analogy “disingenuous.” His group advocates for applying capital gains tax changes to property to maintain consistency and prevent market distortions, warning that without reform, Australia risks losing its competitive edge as founders choose to build startups offshore in countries like Singapore, New Zealand and the U.S.
Venture capitalists also raised concerns over the turnover and lifetime cap thresholds. Rick Baker, a partner at Blackbird Ventures, Australia’s largest venture capital firm, called for indexing the turnover limit to reflect contemporary business scales and warned that the lifetime cap could hinder reinvestment by successful founders into new ventures. He acknowledged ongoing dialogue with Treasury to refine details but stressed the importance of maintaining incentives for serial entrepreneurship.
The carve-out has also been criticized for insufficiently addressing broader equity issues in the startup ecosystem. Ariella Heffernan-Marks, founder of women’s health app Ovum, highlighted that female founders continue to face significant venture capital disparities, receiving less than 2 percent of investment. She welcomed the government’s movement but emphasized that more comprehensive measures are needed to tackle long-standing gender inequities in funding and support.
The Albanese government faces mounting pressure from the startup community to reconsider the structure and conditions of its capital gains tax changes, amid fears that without better-designed policies, Australia could see a slowdown in entrepreneurial activity and a loss of innovative talent to overseas markets.