Startup support measures won’t help founders if they leave the country to escape capital gains tax, Me&u CEO Kim Teo says, after a federal budget that scrapped a tax break benefiting successful entrepreneurs.
Treasurer Jim Chalmers handed down the 2026-27 federal budget on Tuesday night, ending the 50% capital gains tax (CGT) discount on profits from appreciating assets.
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Under the current model, investors who hold an asset for more than 12 months before selling can halve the CGT applied at their marginal income tax rate.
That will change, with the new tax regime taxing an asset’s ‘real’ increase in value above inflation, and a new minimum 30% tax rate coming into play.
Chalmers touted the measure as an act of “intergenerational fairness”, saying the CGT discount system has benefited property investors to the detriment of young Australians trying to buy their first home.
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But the budget measure does not carve out other asset types, meaning shares will face the updated CGT tax regime once sold.
Rumours of this reform spooked startup founders and investors before the budget.
Early-stage companies often lure talented workers with the promise of equity, which can result in major windfalls once the company is acquired or listed on the public market.
And the updated regime could impose a higher tax bill on startup investors compared to the existing 50% discount.
Speaking to SmartCompany on Wednesday, Teo, who co-founded table ordering startup Mr Yum before its merger with Me&u, said the reforms have shocked Australian founders.
“As an industry, we don’t feel like we were consulted or given any opportunity to give feedback on the consequences of these changes to innovation in Australia,” she said.
“These measures have felt rushed and not thought through.”
Tucked away in the budget papers is confirmation the government will discuss the measure with the local startup sector.
“Given the unique characteristics of the tech and startup sector the Government will consult on the interaction of the capital gains tax reforms and incentives for investment in early-stage and start-up businesses,” according to the documents.
“Any consultation would be helpful,” said Teo.
Startup sector fears CGT flight risk
The budget does make some concessions for early-stage companies: on top of loss carry-backs, a new loss refundability offset will benefit new startups that hire staff in their earliest days.
Other reforms bolster the VCLP and ESVCLP programs, which provide tax benefits to fund managers choosing to back startups and scaleups.
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And in the long-run, making property investment less enticing through negative gearing restrictions could encourage growth-minded investors to back productive businesses instead.
But the CGT reform could have “such a huge impact that founders and innovators won’t start businesses in Australia and the ones operating here will move their operations offshore,” said Teo.
Teo is not the only one to claim as much. Rehan D’Almeida, CEO of industry representative groups FinTech Australia, said the measures could make Australia less globally competitive.
“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,” he said.
In a worst-case scenario, there exists a “real risk these changes push capital, talent and ideas offshore” and into regions with looser CGT programs, he added.
Teo also shared her frustrations on LinkedIn, with her commentary drawing support from Zeller’s Ben Pfisterer, and A Cloud Guru and Cuttable’s Sam Kroonenburg.
With the timeline for consultation still uncertain, Chalmers on Wednesday morning defended the changes as beneficial for would-be homebuyers.
“We’re not making judgements about how people have done well,” he told ABC Radio.
“We want more people to do well. But the current intersection of the housing market and the tax system makes it too hard for people to get into the market for the first time.
“That’s why we’re making this change.”
