FinTech Australia warns proposed CGT reforms risk undermining startup investment and innovation
FinTech Australia has warned that uncertainty around Government’s proposed capital gains tax (CGT) reforms will have an immediate impact on startups’ access to funding, and risk pushing founders, capital and talent offshore.
FinTech Australia CEO Rehan D’Almeida said the proposed CGT changes could significantly undermine Australia’s startup and fintech ecosystem if not carefully redesigned.
“These proposed changes risk materially weakening the incentives that underpin startup formation and early-stage investment in Australia,” Mr D’Almeida said.
“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.”
“In a highly competitive global market for technology talent, employee share ownership plans are one of the few mechanisms startups have available to attract and retain highly skilled employees. Weakening the long-term value of equity participation risks making Australian startups less globally competitive.
“There is a real risk these changes push capital, talent and ideas offshore.”
D’Almeida said the fintech sector supported Federal Budget measures including expanded venture capital incentives, support for Digital ID, continued funding for the Consumer Data Right (CDR), and the proposed reinstatement of business loss carry-back arrangements.
WIN:
CDR funding, including work exploring incorporation of ATO tax data into the regime to support lending and verification use cases.
Major Digital ID funding, supporting onboarding, fraud reduction and digital verification across financial services.
Expansion of VCLP and ESVCLP settings, improving access to growth capital for scaling fintechs.
Carry-back and startup loss refundability reforms, improving cash flow for startups investing heavily in growth and compliance.
Better Regulation Roadmap commitments from ASIC, APRA, AUSTRAC and the RBA to simplify reporting, reduce duplication and support payments innovation.
RDTI increases the maximum expenditure ceiling from $150 million to $200 million.
Regulatory sandbox reforms to the enhanced regulatory sandbox.
Continued work on payments reform, including implementation of the Strategic Plan for Australia’s Payments System.
Continued work on tokenisation, digital money and payments infrastructure modernisation.
Commitments to cut red tape, especially reducing unnecessary reporting and disclosure as well as to modernise and simplify financial system frameworks.
CONCERNS:
Proposed CGT reforms, which risk weakening incentives for founders, early-stage investors and startup employees who rely on long-term equity upside and ESOP participation to justify significant financial and career risk. The Government has flagged it will consult with early-stage and start-up businesses to explore concerns around its impact on the tech and start-up sectors.
RDTI threshold increase from $20,000 to $50,000, which risks excluding smaller startups and emerging fintechs from accessing early-stage innovation support.
Removal of supporting activities from eligible R&D expenditure for the RDTI, which is particularly problematic for fintechs whose innovation activities often involve embedded compliance systems, software infrastructure, data experimentation and iterative product development that do not always fit neatly within traditional R&D definitions.
Concerns regarding R&D Tax Incentive reforms
FinTech Australia is concerned the changes to Research and Development Tax Incentive (RDTI) will impact fintechs.
“We are concerned by proposals to remove supporting activities from eligible R&D expenditure and to increase the minimum claim threshold from $20,000 to $50,000,” Mr D’Almeida said.
“Fintech innovation often involves software development, compliance infrastructure, data systems and embedded experimentation that do not always fit neatly within traditional definitions of R&D.”
“There is a real risk that some legitimate fintech R&D activity may no longer qualify, particularly for smaller startups and emerging firms.”
“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.”
Venture capital reforms welcomed, but broader barriers remain
FinTech Australia welcomed the Government’s proposed expansion of the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes, including increases to fund and investee thresholds.
“These reforms are a positive step and reflect the reality that many Australian technology businesses require larger and longer-term pools of growth capital than existing settings were designed for,” Mr D’Almeida said.
“However, fintech businesses have historically faced unique challenges under some venture capital structures because they often operate in compliance-intensive and regulated business models that do not fit neatly within existing eligibility frameworks.”
FinTech Australia said continued reform was needed to ensure venture capital settings properly support software-led, compliance-embedded and regulated innovation.
Carry-back reforms provide important startup support
FinTech Australia welcomed the plan to reinstate and expand loss carry-back arrangements for businesses and startups.
“Carry-back is one of the most cash-flow effective policy levers available to scaling startups,”Mr D’Almeida said.
“Fintechs often cycle between profit and loss years as they invest heavily in growth, compliance, product development and talent. Measures that improve cash flow and support reinvestment are critically important.”
Digital infrastructure and regulatory reform
FinTech Australia also welcomed continued funding for Digital ID and the Consumer Data Right, including exploration of expanded access to government-held data through the CDR framework.
“These systems are foundational digital infrastructure for the future economy,” Mr D’Almeida said.
“However, unlocking their full economic value will require stable long-term funding, practical implementation and continued focus on reducing unnecessary compliance friction.”
FinTech Australia noted the concurrent release of the Council of Financial Regulators’ Better Regulation Roadmap implementation plan, which includes commitments from ASIC, APRA, AUSTRAC, the ACCC and the RBA relating to payments reform, CDR, AML/CTF simplification, digital reporting, tokenisation, bank licensing and reducing regulatory burden for fintechs and smaller firms.
“The broader direction toward more coordinated, technology-enabled and proportionate regulation is welcome,” Mr D’Almeida said.
“However, the fintech sector is simultaneously navigating a very large pipeline of reforms across payments, digital assets, AML/CTF, scams, AI, Digital ID and open banking.”
“Ensuring these reforms are properly sequenced and practically implementable will be critical.”
According to Deloitte Access Economics research commissioned by FinTech Australia, the fintech sector currently contributes $13.6 billion in direct value added to the Australian economy and supports more than 109,000 jobs nationally. With the right policy settings, the sector could contribute up to $37 billion to GDP by 2035.
