There’s a specific kind of dread that settles in when you realise the rules changed while you were busy building something. You’ve spent years, possibly the better part of a decade, working at a salary that would make your mates in corporate jobs wince. You took equity. You believed in it. You told your early team to believe in it, too. You told them to take less cash now because the upside would make it worth it down the track. And somewhere in the back of your mind, you had a rough figure. A number. The exit number that would make all of it, the late nights, the stress, the personal guarantees, actually mean something financially.
Then the 2026 Federal Budget landed. And that number got a whole lot messier.
What Actually Changed – In Plain English
From 1 July 2027, the 50% Capital Gains Tax discount is gone. Done. That discount has been sitting in the Australian tax system since 1999, and for founders, it’s always been one of the more meaningful parts of the exit equation. Hold your shares for more than 12 months, sell, and pay tax on only half the gain. Simple enough. Significant enough.
The 2026 budget didn’t only touch CGT, though. It was a sweeping package of changes for the Australian startup ecosystem – R&D reforms, VC threshold increases, loss carry-back, PAYG refundability for early-stage companies. If you haven’t come across the full breakdown of what the budget means for founders yet, we covered everything in detail here.
But back to CGT, because this is the part that’s keeping founders up at night.
What’s replacing it is an inflation-indexed cost base model, which sounds reasonable until you remember that most founders start their shares at a near-zero cost base. Indexation adjusts for inflation on what you originally paid. If you paid next to nothing for your founder shares, which, let’s be real, most of you did, inflation-adjusting almost nothing still gives you almost nothing. The relief mechanism doesn’t really work for founder equity the way it was apparently designed to.
On top of that, there’s now a minimum 30% tax rate on capital gains. Regardless of your personal marginal rate, regardless of how long you held the shares, that floor applies. So the effective tax rate on a successful exit for an individual founder on the top marginal rate moves from roughly 23.5% under the old system to at least 30%, and potentially much higher depending on how the gain looks. For a fast-growing startup where the shares went from a few cents to something meaningful, the gap between 23.5% and 30%+ on a large number is not a rounding error. That’s real money.
The Part That’s Actually Got Founders Losing Sleep
Here’s what’s sitting in founders’ group chats and LinkedIn threads right now.
The CGT discount wasn’t something most founders thought about every day. It lived quietly in the background as part of why building equity in an Australian company made sense. You forego salary. You take a risk. You attract early employees by offering them a share of something. And at the back of it all, the tax system acknowledged imperfectly, sure, that the gain from years of risk-taking shouldn’t be taxed the same way as a regular pay cheque.
That acknowledgement is getting a lot harder to see now.
Dr Thomas Kelly, CEO of Heidi Health, put it clearly in the days after the budget dropped. His employees had already started asking about relocating overseas. Not because they’re disloyal, but because they’re doing the maths. The maths on whether taking startup equity in an Australian company still makes sense when the tax outcome on a good result starts looking more like income tax than capital reward.
That’s the knock-on effect people underestimate. It’s not just about founder wealth at exit. It’s about whether your first ten employees, your early engineers, your founding designer, people who took a bet on you when you were nobody, will still find the deal worth it. If the upside gets taxed like ordinary income, you lose one of the few competitive advantages Australian startups have in the talent market.
What About Trusts?
A lot of founders hold their startup shares through a discretionary trust. It’s a common structure that gives flexibility, some asset protection, and options around distributions at exit. That picture is getting more complicated, too.
From 1 July 2028, discretionary trusts face a minimum 30% tax on all trust income at the trustee level. Combined with the removal of the CGT discount, founders who were holding shares in a trust are looking at a pretty material shift in how the exit economics land. The income-splitting flexibility that made trust structures attractive starts to matter a lot less when the floor on trust tax is 30%.
The government has announced a three-year rollover window from 1 July 2027 to 30 June 2030, which lets trusts restructure into companies or fixed trusts without triggering immediate CGT consequences. That window exists. It might be useful for some. But restructuring a trust without understanding exactly where the consultation on startup-specific CGT treatment lands would be getting ahead of yourself.
Which brings us to the one genuinely uncertain part of all this.
The Consultation – What It Means and What It Doesn’t
The government has flagged that it will consult specifically with the startup sector on how the CGT reforms interact with early-stage investment. The budget papers used the phrase “unique characteristics of the tech and startup sector.” The Assistant Treasurer acknowledged publicly that founders with near-zero cost bases are a “very special case.”
That sounds like movement. And honestly, it might be. Multiple founder and investor groups are already organising, pushing hard for startup-specific concessions, around founder equity, employee share schemes, and early-stage investment. The Coalition has said publicly it would repeal the CGT changes entirely if elected. There is political and industry pressure here that doesn’t feel like it’ll go quiet.
But, and this matters, there is currently no confirmed carve-out. No draft legislation. No details on what the consultation will actually produce or when. The reforms, as announced, kick in from 1 July 2027. That date is thirteen months away. Consultation could deliver meaningful concessions for startup founders. It could also deliver something narrower than the sector is hoping for.
The time between now and July 2027 is the thing worth paying close attention to.
What Founders Should Actually Be Doing Right Now
A few things are worth taking seriously before the new rules take effect.
1. Get clear on your current position. If you hold shares personally, through a trust, or through an employee share scheme, you need to understand exactly what your cost base looks like, when you acquired those shares, and what the transitional rules mean for gains that have already accrued. Gains that accrued before 1 July 2027 can still access the 50% CGT discount for that portion. That’s a window worth understanding.
2. Talk to an advisor who actually knows this space. Not your general accountant. Someone who deals with founders and startup equity regularly. The interaction between the CGT changes, employee share scheme rules, the ESIC tax offset, and the R&D incentive is genuinely complex right now, and the wrong move before the consultation wraps up could cost you.
3. Watch the consultation closely. The startup sector is loud on this and organised. The government is listening, or at least signalling that it is. What comes out of that consultation process matters enormously for founders who are years from an exit.
And if you have employees holding equity, early team members, engineers who took a punt on you, have an honest conversation with them. Not a scary one. An honest one. They deserve to understand how the landscape is shifting and what you’re doing about it.
The Bigger Picture
Australia has produced genuinely world-class companies. Canva. Atlassian. Afterpay. Those companies didn’t happen in a vacuum. They happened partly because talented people were willing to bet on something uncertain, and the tax system, imperfect as it was, made that bet feel worth taking.
The CGT reform was built around housing affordability. That’s a legitimate policy problem. But startup equity is not a residential investment property. A founder who spent eight years building a company on a below-market salary, carrying personal risk the whole way, is not the same as an investor who bought a second property and sat on it. The political framing got messy, and the founders ended up caught in the middle of a reform designed for a completely different problem.
That’s the frustration you’re hearing across the ecosystem right now. And it’s a fair one.
The government has time to fix the specific startup problem before July 2027. Whether it does depends a lot on how clearly and consistently the sector makes the case over the next few months. There are people working on exactly that. Worth knowing about. Worth paying attention to.
Because this one actually matters.
Disclaimer: This content is provided for general information and educational purposes only and should not be relied upon as financial, investment, legal, tax, or accounting advice. Hyper Apps Pty Ltd (Hyper Studio) does not hold an Australian Financial Services Licence (AFSL) and does not provide financial product advice. You should obtain independent professional advice relevant to your circumstances before making any financial or investment decisions.
Sasha Reid is the founder and CEO of Hyper, an Australian startup studio helping founders validate, launch and grow startups. Since 2015, he has worked with over 1,500 founders across AI, SaaS, fintech and consumer tech.
