Brian Cooke, Co-founder of MooCoo Ventures and angel investor
Submission to the Senate Economics Legislation Committee Inquiry into Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
The CGT changes proposed in these bills matter enough to angel investors and founders of early stage companies that I felt compelled to submit to the Senate Economics Legislation Committee. What follows is that submission.
Australia is having a serious argument about capital gains tax. The problem is that it is the wrong argument. The debate has been narrowed to a question of discount rates. Should it be 25 per cent or 50 per cent? The debate has become a political bonfire: generating enormous heat, attracting everyone’s attention, and consuming vast amounts of energy, while illuminating remarkably little about the underlying problem.
And that is, that Australia makes no meaningful distinction between capital that builds things and capital that waits. We tax builders and bystanders the same and until these changes, the CGT discount is a footnote.
I have spent years backing Australian founders, writing early cheques into companies that had nothing but an idea and a team. I have also watched colleagues put the same capital into an investment property and sleep considerably better. That gap, in risk, in economic contribution, and in tax treatment, is what this debate should be about.
The stakes are not theoretical; they are measured in investment foregone, companies never founded, jobs never created and innovations that never leave the laboratory. Australia deploys just 0.18 per cent of GDP in venture capital, well below the rates of the United States, the United Kingdom, and Israel. And yet according to Bloomberg, Australian founders produce more unicorn startups per dollar invested than any country in the world, including the United States and China, at 1.22 unicorns per billion dollars deployed.
Spend time around Australia’s startup ecosystem and one thing becomes obvious: the talent is not the issue. Australian founders have repeatedly shown they can build world-class companies. The problem is that our tax system increasingly rewards caution over ambition. These changes would reinforce that signal, making it harder to attract the capital and talent that high-growth companies depend on.
Two kinds of capital. One tax rate
Productive capital goes to work. It backs a founder, funds a payroll, creates intellectual property, and competes in global markets. When it succeeds, it generates wealth that did not previously exist.
Passive capital waits. Buying and holding property is not the same thing as backing a startup. One is a bet that something you buy will become more valuable. The other is a bet that a group of people can create value where none existed before. We should be careful about treating those activities as though they contribute equally to the economy.
Australia taxes both identically. An investor who backed an early-stage technology company a decade ago, absorbing genuine risk and recycling capital into employment and IP, pays the same CGT discount as someone who held a negatively geared investment property for twelve months and sold into a rising market. That is not a neutral position. It is a choice, and it is the wrong one.
The rest of the world understands this
The United States has enshrined this distinction in law. The Qualified Small Business Stock exemption covers investors, founders, and employees alike. An engineer who exercises options early and holds through to exit can exclude up to 100 per cent of their capital gain from federal tax after five years, with partial exclusions of 50 per cent at three years and 75 per cent at four.
The United Kingdom takes a similarly differentiated approach: its EIS and SEIS regimes offer substantial relief to outside investors backing early-stage companies, while a separate scheme, the Enterprise Management Incentive, extends favourable tax treatment to employees holding share options. The underlying logic is consistent across both countries: capital and labour that take genuine productive risk deserve to be treated differently from those that do not.
This matters more than it appears. Somewhere right now, an Australian engineer is deciding whether to join a local startup or take a job in the United States. Salary matters. So does opportunity. But so does the answer to a simple question: if the company succeeds, how much of that success do I actually keep? In the US, the answer can be all of it under QSBS. In the UK, it may be taxed at just 10 per cent under EMI. Australia is moving in the opposite direction.
The brain drain is not a sudden exodus. Nobody rings a bell and announces it has begun. It happens one decision at a time, as talented people respond to the incentives in front of them. An engineer takes the role in San Francisco. A founder moves to Austin. A product leader accepts an offer in London. Each decision is rational in isolation. Over time, they become a pattern. By the time the consequences are visible, the talent is already elsewhere.
Australia is not without answers. The Early Stage Innovation Company regime gives qualifying investors a 20 per cent tax offset on entry and a CGT exemption on exit. ESIC’s qualification process which combines an early stage test, an innovation test, and tight revenue and expense caps is so complex that genuine investors routinely fail it on technicalities. The $200,000 annual offset cap limits its relevance to institutional capital. It has not been meaningfully updated since 2016, and the most recent government intervention was not reform but anti-avoidance guidance.
The startup employee share concession was never a loophole. It was a recognition that joining a startup is a bet. Employees trade higher salaries and greater certainty for a chance to share in the success they help create.
Australia already asks them to make that bet on less generous terms than many competing jurisdictions. Remove the CGT discount and the equation becomes even less attractive. The risk stays exactly where it is. The reward does not.
That matters because the damage compounds quietly. The innovation economy does not weaken by announcement — it weakens by default, one rational choice at a time. By the time the pattern is visible, it is already set.
The standard objection
The standard objection is familiar: preferential treatment for startup investors benefits a small group of already-wealthy people, and the fiscal cost is not justified by the return.
That argument gets the causality backwards.
Australia does not suffer from a shortage of capital. It suffers from a shortage of capital willing to take productive risk. Too much money sits comfortably in housing, cash and established assets. The policy challenge is not to reward the investors already backing startups. It is to draw in the investors who are not.
The prize is not a larger venture capital industry. The prize is a larger innovation economy. Every dollar shifted from passive appreciation to productive enterprise increases the chance that a new company is formed, a new technology is commercialised, or a new export market is opened.
The political debate is missing the point. This is not really an argument about tax rates. It is a question about what kind of economy Australia wants to build.
A properly designed productive asset framework would cost far less than the concessions that already support investment in existing assets. The difference is not the revenue foregone — it is what the capital does. One largely rewards appreciation. The other encourages creation.
The fix is simpler than the problem
Three changes would move Australia materially closer to a rational position.
First, consolidate the exit relief. Replace the patchwork of CGT exemptions with a single productive asset framework: a tiered CGT exclusion of 50 per cent at three years, scaling to full exemption at five, available to investors, founders, and employees in any actively operating Australian business, regardless of investment structure. One test. One outcome. Accessible to the angel writing a $50,000 cheque through a syndicate and the institutional fund manager alike.
Second, strengthen the entry incentive. The existing 20 per cent tax offset for early-stage investors should be increased and indexed to inflation. It has not moved since 2016.
Finally, stop treating failure differently depending on where the money was invested. When a property investor makes a loss through negative gearing, that loss can be used to reduce tax on other income immediately. When an angel investor backs a startup that fails, the loss is largely trapped in the capital account, often for years and sometimes forever. The result is difficult to justify. The investor who backed a young company, accepted a high probability of failure and helped finance a productive business receives less useful tax treatment than the investor who bought an established asset. Allowing qualifying early-stage investment losses to be offset against ordinary income, subject to a reasonable annual cap, would not create a special privilege. It would simply recognise a basic principle: if we want people to take productive risks, we should not make failure more expensive than it needs to be.
Canva, Atlassian and Afterpay were not accidents. They were the product of talented founders and patient capital prepared to take risks. Australia still has all three. The question is whether our policy settings encourage those ingredients to come together.
Until we recognise that building new wealth and owning existing wealth are different things, every discussion about innovation, productivity and economic diversification will remain an exercise in political rhetoric rather than economic strategy.
¹ Bloomberg, “Australia Creates More Unicorn Startups Per Dollar Invested Than US or China,” 29 June 2025. Underlying data: Side Stage Ventures, Dealroom.co, and Amazon Web Services, Australia Venture & Startup Report 2025.