A peak body told a parliamentary inquiry that proposed tax changes would have prevented companies like Canva and Atlassian from being founded. The reform targets loopholes. Industry groups warn it risks freezing early-stage capital.
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A peak body for private capital told a parliamentary inquiry that proposed Labor tax changes would have prevented some of Australia's most successful companies from being founded. The warning came as the government pushes ahead with a reform package aimed at raising revenue from high-income earners and closing structures investors use to defer tax.
Current tax settings let early-stage investors claim losses on startup failures against other income. They also offer capital gains concessions for shares held more than 12 months. The reform would scrap the ability to carry back losses against past tax paid. It would also tighten the rules on what counts as a genuine early-stage investment.
The peak body argued that without those concessions, angel investors would not take the risk on pre-revenue companies. It cited Canva and Atlassian as examples that burned cash for years before turning profitable. Under the proposed rules, the first institutional investor in each of those businesses would have faced a tax bill on paper gains before any real cash return, the submission said. That would effectively kill the investment.
The inquiry heard that the reform targets structures used by wealthy individuals to convert income into capital gains. The unintended consequence would be to freeze the pipeline of early-stage capital, the peak body said. A submission from the private capital industry estimated the changes would reduce startup funding by 30 to 40 percent over two years. That figure was not independently verified by the inquiry.
Labor has framed the reform as closing a tax avoidance loophole used by the top 1 percent. Treasury officials told the inquiry that the revenue raised would be directed into the budget's surplus target. The peak body countered that the long-term revenue from successful startups, in corporate tax and employment taxes, far exceeds the short-term saving.
The inquiry continues. No date has been set for a report to parliament. The reform is not yet law. Industry groups are lobbying for carve-outs for early-stage investments. A final vote is likely in the second half of the year, assuming the government secures crossbench support.
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