It’s budget time, and if previous years have taught us anything, it’s to expect very little for the startup sector. But compared to previous years, Treasury threw out a few more bones, particularly when it comes to tax relief and investment incentives.
In fact, startups and VCs got some direct mentions in the budget papers. This was a nice surprise given the continued cost of living pressure, fuel costs and the fact that after a string of surpluses, this year’s deficit is as red as the budget tree itself.
While there weren’t any startup-specific grants or programs, there were a number of items that should be of interest.
That being said, we’re sure there will be a lot of opinions from founders and VCs floating around LinkedIn tomorrow. Feel free to shoot any particularly spicy hot takes our way for post-budget coverage.
Loss refundability
Startups with an aggregated annual turnover of less than $10 million, that also generate a tax loss in their first two years of operation, will accrue a refundable tax offset.
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This offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
In other words, loss-making startups could benefit at tax time if they hire staff in their early days.
Read more.
Loss carry back
Businesses with an aggegated annual turnover of less than $1 billion will be able to carry back a tax loss and offset it against the tax paid up to two years earlier.
“Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance,” the budget papers read.
If this sounds familiar, it’s because this is a COVID-era measure that the government is… carrying back. But it’s not as robust this time around.
Read more.
VCLP and EVCLP increase
The 2026-27 budget papers have revealed federal government plans to boost VC tax inventives to “better facilitate venture capital investment and support early stage and growth businesses.”
The venture capital limited partnership (VCLP) system will expand from July 1, 2027, with the asset value cap on investment targets lifting from $250 million to $480 million.
There will also be an increase to the early-stage venture capital limited partnership (ESVCLP) cap on the asset size of the investee business at the time of investment, which will increase from $50 million to $80 million.
The ESVCLP tax incentive cap, dictating how large an investee business can be before investment returns are no longer fully tax exempt, will increase from $250 million to $420 million.
And the maximum fund size of ESVCLPs will be increased from $200 million to $270 million.
Read more.
Huge R&D reform
One of the biggest pre-budget rumours was changes to the R&D Tax Incentive (RDTI). While it traditionally been more beneficial for larger businesses, some of the changes could be beneficial for startups and scaleups.
The current RDTI allows businesses with a turnover below $20 million to access refundable offsets. That is now going to be boosted to $50 million to “enable growing firms to retain access to the refundable tax offset for longer.”
As for firms below this $50 million threshold, they will maintain older firms’ eligibility for the higher offset rate while limiting refundability to firms under 10 years of age.
There is also an improvement for smaller claims. The budget papers confirmed that the government is lifting the minimum expenditure threshold from $20,000 to $50,000.
Read more.
CGT changes
The startup sector was quite vocally concerned over rumoured CGT changes over the last week due to the proposed inflation model.
The issue was that equity is often used to attract founders, talent, and investors willing to take significant risks in exchange for the possibility of a future payout if a company is acquired or goes public.
That becomes a harder sell if the eventual tax treatment on those gains is high.
The government may have been listening, because it will now be holding a consultation on this interaction between CGT reforms and incentives for startup investment.
Read more.
Instant asset write-off
After years of last-minute extensions every EOFY, the $20,000 instant asset write-off will now be a permanent fixture of the Australian taxation system.
The instant asset write-off allows small businesses to instantly claim a tax deduction for eligible purchases up to the value of $20,000, instead of claiming depreciation on the asset over a number of years.
Read more.
$1,000 instant tax reduction
The budget includes a boost to the ‘instant’ tax deduction for work-related expenses, bringing it up to $1,000.
This lifts the value of eligible expenses taxpayers can deduct from their assessable income, without providing receipts, from its current level of $300.
Read more.
AI
There was a great deal of posturing about the government’s support for AI in the supplementary budget material.
This included government support of AI adoption in small businesses, the National AI plan, the launch of AI.gov.au last week (which has a focus on SME resources) and even up to $70 million to AI intelligence research through the Accelerator CRC program rounds.
However, just like last year, there wasn’t actually any new spending attached to AI in the budget papers themselves.
EV discount
The government wants to encourage more EV uptake… but you’ll have to wait until 2029.
In three years time threre will be a permenant 25% discount on fringe benefits tax (FBT) for all EVs valued up to and including the fuel‑efficient luxury car tax. This will be implemented through a 15% rate in the FBT statutory formula.
There will also be some transitional arrangements put in place:
All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced
All electric cars valued up to and including $75,000 that are provided before April 1, 2029, will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the FBT statutory formula
Electric cars valued above $75,000 and up to and including the fuel‑efficient luxury car tax threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15 per cent rate in the FBT statutory formula.
According to the budget papers, the current 20% statutory rate will continue to apply for all other cars, including EVs that cost more than the fuel-efficient LCT threshold.
To see SmartCompany‘s full budget coverage, click here.
