The Albanese Government has released the draft legislation to implement two critical and controversial tax changes announced in the 2026-27 Budget.
The Treasury Laws Amendment (Tax Reform No. 5) Bill 2026 reforms the Research and Development Tax Incentive and creates a new Innovative Business Capital Gains Tax Concession for early-stage investors.
Both changes have triggered concerns across Australia's life sciences sector.
Under the proposed changes to the R&D Incentive, the minimum expenditure threshold to claim the offset rises from $20,000 to $50,000, effectively pushing small, incidental R&D spending out of the scheme. At the other end, the ceiling for the premium offset rate climbs from $150 million to $200 million.
The most consequential change, however, is the incentives cash component.
The refundable offset will no longer be available indefinitely.
Under the reforms, an entity only qualifies within ten years of first carrying on its enterprise or first registering for the incentive, and only if its turnover stays under a raised $50 million threshold, up from $20 million. After that decade, the entity can still claim a tax offset, just not a refundable one.
However, the Government has made a concession in response to concerns raised by the life sciences sector, notably AusBiotech.
Recognising that clinical trials and regulatory pathways routinely exceed a decade, companies developing therapeutic goods get fifteen years of the refundable cash component instead of ten. The condition is that the Industry Innovation and Science Australia Board finds their R&D dominantly aimed at generating new knowledge about a therapeutic good or its use.
Offset rates rise across the board by 4.5 percentage points to offset the tighter eligibility, and the intensity premium threshold, which is the R&D spending level relative to total expenses that unlocks a higher rate, drops from 2 per cent to 1.5 per cent. Supporting R&D activities lose eligibility altogether. Only core R&D qualifies. These changes apply to income years starting on or after 1 July 2028.
The reforms to the Capital Gains Tax (CGT) Concession follow a broader overhaul, legislated in June, which stripped the general 50 per cent CGT discount from individuals, trusts and partnerships in favour of cost-base indexation, and added a 30 per cent minimum tax on capital gains, both taking effect from 1 July 2027.
Recognising that start-ups are volatile assets, hard to value, and often break even for years, the government consulted in June on a targeted carve-out and has now proposed creating the Innovative Business CGT Concession. From 1 July 2027, individuals and trusts, but not companies, super funds or foreign residents, will retain a full 50 per cent discount on gains from shares, options or convertible notes issued directly by an eligible early-stage company, provided the stake has been held at genuine risk for at least three years.
To qualify, the company must meet the definition of an IBCC company. This means it must be incorporated for under 15 years, based in Australia, not controlled by an older parent, have turnover under $50 million, and satisfy new innovation and predominant-activity tests confirming it is developing a genuinely innovative product, process, service or method for commercialisation.
The sector-specific concession follows months of post-Budget advocacy by AusBiotech. In a message to members, the organisation said the sustained advocacy was based on member surveys, company case studies, submissions backed by 17 peak science bodies, clinical trial providers and leading medical scientists and founders, advice to a Senate inquiry, meetings with numerous parliamentarians, and roundtables with officials from Treasury, the Department of Industry, Science and Resources and the Department of Health and Ageing.
AusBiotech said it welcomes the concession on the R&D Tax Incentive changes, but believes more work is needed to ensure the final legislation meets its objectives. It also welcomes the concessions on CGT, but remains concerned that listed companies remain excluded. It said this represents a real constraint for biotech companies that list early to fund years of expensive clinical trials. The organisation said it will keep advocating for policy settings that reflect the sector's realities as consultation continues over the coming weeks.
