FinTech Australia has warned that proposed capital gains tax changes could weaken startup investment in Australia and push founders, capital and talent offshore.
It said uncertainty around the changes would immediately affect access to funding for startups, particularly in fintech, where early-stage businesses often rely on equity incentives and risk-tolerant investors.
Chief executive Rehan D’Almeida said the proposed measures would undermine the incentives that support startup formation and early-stage backing.
“These proposed changes risk materially weakening the incentives that underpin startup formation and early-stage investment in Australia,” D’Almeida said.
“The startup ecosystem depends on individuals taking extraordinary levels of financial and career risk. Founders often spend years building businesses without stable income, investors deploy capital into extremely high-risk ventures, and early employees accept lower cash salaries in exchange for equity upside.”
D’Almeida also pointed to the role of employee share schemes in hiring and retaining staff in a competitive market for technology workers.
“In a highly competitive global market for technology talent, employee share ownership plans are one of the few mechanisms startups have to attract and retain highly skilled employees. Weakening the long-term value of equity participation risks making Australian startups less globally competitive.
“There is a real risk these changes push capital, talent and ideas offshore.”
Tax concerns
FinTech Australia also said planned changes to the Research and Development Tax Incentive could hurt smaller firms.
It objected to proposals to remove supporting activities from eligible R&D expenditure and raise the minimum claim threshold from $20,000 to $50,000, arguing the changes could shut out early-stage fintechs whose work often combines software development, data systems, compliance processes and product testing.
“We are concerned by proposals to remove supporting activities from eligible R&D expenditure and to increase the minimum claim threshold from $20,000 to $50,000,” D’Almeida said.
“Fintech innovation often involves software development, compliance infrastructure, data systems and embedded experimentation that do not always fit neatly within traditional definitions of R&D.
“There is a real risk that some legitimate fintech R&D activity may no longer qualify, particularly for smaller startups and emerging firms.
“Combined with the higher minimum threshold, these changes could see a number of smaller fintechs miss out on support altogether at precisely the stage where early innovation support matters most.”
Measures backed
Even as it criticised those tax settings, the organisation backed several parts of the budget agenda affecting financial technology firms.
It welcomed continued funding for Digital ID and the Consumer Data Right, including work on possible access to Australian Taxation Office data through the Consumer Data Right for lending and verification.
It also backed the expansion of Venture Capital Limited Partnership and Early Stage Venture Capital Limited Partnership settings, the return of business loss carry-back arrangements, changes to the regulatory sandbox, and ongoing work on payments reform, tokenisation and digital money.
The group also noted commitments by regulators including ASIC, APRA, AUSTRAC, the ACCC and the RBA to simplify reporting, cut duplication and update parts of the financial system framework.
Capital access
On venture funding, FinTech Australia said the planned expansion of venture capital partnership regimes was a useful step but would not remove all barriers for fintech businesses.
“These reforms are a positive step and reflect the reality that many Australian technology businesses require larger and longer-term pools of growth capital than existing settings were designed for,” D’Almeida said.
“However, fintech businesses have historically faced unique challenges under some venture capital structures because they often operate in compliance-intensive and regulated business models that do not fit neatly within existing eligibility frameworks.”
It said further changes were needed so venture capital rules better reflect software-led businesses operating in regulated markets.
Cash flow
FinTech Australia also backed the plan to reinstate and expand loss carry-back arrangements, saying the move would support startups that alternate between profitable and loss-making years while investing in growth.
“Carry-back is one of the most cash-flow-effective policy levers available to scaling startups,” D’Almeida said.
“Fintechs often cycle between profit and loss years as they invest heavily in growth, compliance, product development and talent. Measures that improve cash flow and support reinvestment are critically important.”
Regulatory load
On digital infrastructure, the body said Digital ID and the Consumer Data Right were important parts of the financial services framework but needed sustained support and practical delivery.
“These systems are foundational digital infrastructure for the future economy,” D’Almeida said.
“However, unlocking their full economic value will require stable long-term funding, practical implementation and continued focus on reducing unnecessary compliance friction.”
He said fintech companies were dealing with a heavy reform pipeline spanning payments, digital assets, anti-money laundering rules, scams, artificial intelligence, Digital ID and open banking.
“The broader direction toward more coordinated, technology-enabled and proportionate regulation is welcome,” D’Almeida said.
“However, the fintech sector is simultaneously navigating a very large pipeline of reforms across payments, digital assets, AML/CTF, scams, AI, Digital ID and open banking.
“Ensuring these reforms are properly sequenced and practically implementable will be critical.”
Research by Deloitte Access Economics, commissioned by FinTech Australia, found the fintech sector contributes AUD $13.6 billion in direct value added to the Australian economy and supports more than 109,000 jobs nationally. With the right policy settings, it could contribute up to AUD $37 billion to GDP by 2035.
