Innovative business CGT concession eligibility period too short

In a submission to Treasury’s consultation on the Innovative Business CGT Concession (IBCC), the body for health and medical research and innovation (HMR) welcomed the move to extend the age limit of an IBCC company from 10 to 15 years after initial rounds of consultation, lowering the minimum holding period to three years, and removing the lifetime cap.

The government’s draft legislation for the IBCC, which will allow eligible businesses to claim a discount on capital gains when the new CGT regime begins, stated that an IBCC company is one that has been incorporated for less than 15 years and is not controlled by another company that has been incorporated for 15 or more years.

However, Research Australia argued that the extension does not eliminate the central design issue. In particular, in medtech and biotechnology, the period from incorporation to a significant liquidity event could include prototype development, pre-clinical work, ethics approval, clinical validation, regulatory approval in Australia and overseas, reimbursement assessment, manufacturing scale-up, and procurement.

It added that these activities often occur sequentially, depend on external approvals, and require multiple capital rounds.

“A hard age cap withdraws the concession precisely when a long-cycle company may need later-stage capital the most,” the submission said.

“It can also create arbitrary differences between companies pursuing comparable technologies merely because one incorporated earlier, undertook research within a university before spinning out, or encountered a longer clinical or regulatory pathway.”

Research Australia instead called for the removal of the age limit, arguing that the $50 million aggregated turnover threshold, innovation requirements, and asset-level rules already target the concession.

“If the government considers a limit necessary, the legislation should provide an extension based on objective evidence of continued innovation and commercialisation activity rather than a narrow product category,” it said.

Research Australia has also recommended that the government ensure that the IBCC operates coherently with the research and development (R&D) tax incentive, venture capital incentives, and other Commonwealth research translation and commercialisation programs.

While it said it has consistently supported policies that encourage private investment through venture capital, angel investment, and other financing pathways, it insisted that incentives are most effective when they form part of a coordinated investment system.

It argued that fragmented policy and funding arrangements could create duplication and gaps, which could deter external investment.

As such, it said the IBCC should complement rather than substitute other elements of Australia’s research and innovation financing framework, including the R&D tax incentive, venture capital arrangements, the Medical Research Future Fund (MRFF) and the National Health and Medical Research Council (NHMRC) investment, translational and commercialisation funding, government procurement, and private and philanthropic capital.

“This is particularly important because tax concessions alone cannot resolve every financing gap,” the submission said.

Research Australia said that if implemented effectively, the IBCC could help close Australia’s commercialisation gap and strengthen the venture capital pipeline.

It could also increase chances of Australian research creating Australian companies, highly skilled jobs, sovereign capability, and economic and health benefits, it added.

“The IBCC should form part of a broader, coordinated approach to increasing private investment across Australia's innovation pipeline,” the submission said.

“Australia already has world-class research capability. The policy challenge is to ensure that promising discoveries can attract sufficient patient capital to progress through translation, validation, commercialisation, and scale-up in Australia.”