Latest CGT Changes - what do you think?
The latest CGT changes for innovative businesses are a significant improvement on the original proposal.
A 15-year qualifying window, a three-year minimum holding period and removal of the $10 million lifetime cap are all sensible moves — particularly for industries such as biotech, where value creation rarely fits neatly into a five or ten-year timetable.
But there is still a fundamental issue.
A tax concession designed to encourage investment is only valuable if investors can rely on it.
If an investor qualifies when they put their capital at risk, should they really lose that treatment years later because the company’s activities change, its qualifying status is subsequently lost, or an ongoing compliance requirement is not met?
That is not just a tax issue. It goes directly to how investors price risk.
The $50 million turnover threshold, the definition of an “innovative” business, the focus on newly issued equity rather than secondary share purchases, and the potential for qualifying status to be lost all create uncertainty.
And uncertainty has a cost.
Government can announce generous incentives, but if investors need detailed tax advice to determine whether the benefit will still exist at exit, much of the incentive is lost.
The changes are clearly heading in the right direction.
But having improved the economics of the concession, the next challenge is certainty and administrability.
If an investment qualifies when the money goes in, and the investor satisfies the required holding period, there should be a high degree of certainty about the tax treatment when the money eventually comes out.
What do you think?