Chalmers lifts R&D cap to $300m but startups face 47pc CGT rate

Chalmers lifts R&D cap to $300m but startups face 47pc CGT rate

Treasurer Jim Chalmers used his 2026 budget speech on Monday night to lift the research and development tax incentive cap to between $250 million and $300 million. That increase signals Canberra is listening to the innovation sector. But buried in the same budget papers is a capital gains tax proposal that could push the effective rate on startup share sales from 23.5 per cent to 47 per cent. Founders say the change threatens the equity-based compensation model that the entire Australian startup ecosystem runs on.

Those two signals — invest in R&D, but penalise the exits that fund it — have left Australia’s tech industry parsing a budget that is at once its biggest friend and its sharpest threat.

A bigger R&D cap, but only for the few

The incentive lift raises the expenditure ceiling from the current $150 million. That follows the Ambitious Australia report commissioned by the government and chaired by Tesla chair Robyn Denholm. The report, delivered to the Department of Industry, Science and Resources in late 2025, found that Australia’s business expenditure on R&D had declined over the past decade. The country spends roughly 1.5 times less than OECD peers on research as a share of GDP.

“Australia’s innovation system is falling behind global peers,” the Denholm report concluded, recommending a higher incentive cap as a first-order fix.

Partial delivery, then. That new ceiling should help companies already at the $150 million limit — a handful of large R&D-intensive firms including Atlassian and the major miners — claim more of their spending back. It does little, though, for early-stage startups, whose R&D expenditure rarely brushes against the old cap, let alone the new one. For early-stage founders, the more consequential number in the budget papers sits in a different chapter entirely.

The CGT problem: 23.5pc becomes 47pc

Startup employees and founders who hold shares or options for more than 12 months currently qualify for the 50 per cent CGT discount, producing an effective top rate of 23.5 per cent. The budget flags changes to tighten eligibility for that discount.

Analysts say the move could lift the effective rate to 47 per cent for share sales above a yet-to-be-specified threshold.

“It kills the only compensation mechanism startups have,” one Sydney-based seed-stage founder said of the proposal, speaking anonymously because their company is midway through a fundraising round.

The industry pays engineers and early employees in options rather than cash. The arithmetic is straightforward. A founder who sells $1 million worth of shares under the current rules keeps roughly $765,000 after tax. Under the proposed changes, that figure drops to $530,000. That $235,000 difference is often the return on five or more years of below-market salary.

Chalmers signals flexibility on super, not CGT

That tension between attracting and repelling investment was not lost on Chalmers. During his budget-night press conference, the Treasurer signalled a potential carve-out for venture capital from the government’s superannuation performance test reforms.

“We don’t want the performance test to unintentionally discourage investment in some of the most important parts of our economy,” Chalmers told reporters. “We will be improving it, we will be modernising it, and we will be reforming it.”

The super test matters because Australia’s $3.9 trillion superannuation pool is the government’s preferred vehicle for channelling institutional capital into venture. The Your Future, Your Super performance benchmarks penalise funds for holding illiquid, high-variance assets like VC stakes. A carve-out would lower that friction. Combined with the higher R&D cap, it sketches the outline of a productivity strategy.

So far, however, no equivalent flexibility has been signalled on the CGT proposal.

What happens next

Industry groups are already mobilising. The Business Council of Australia’s 2025 Mandala Partners report recommended a collaboration premium for industry-university partnerships and a patent-box expansion. Neither appeared in the budget.

Startup advocacy bodies are expected to push for CGT concessions during the consultation period that follows budget night.

The budget lands at a fragile moment for Australian tech. Venture funding in the March quarter was down year-on-year, and the IPO window that founders once aimed for remains shut. Canberra’s instinct to invest in R&D is well-signalled and broadly welcomed. But unless the CGT proposal is walked back or ring-fenced to exclude startup equity, the net effect on the sector could be negative — a budget that writes a cheque with one hand and cancels it with the other.