A proposed capital gains tax structure for startups violates the Prime Minister’s pledge to the sector, according to quantum technology firm Q-CTRL, potentially undermining Australia’s innovation ambitions. The company argues the current Indexed Benefit Cap Cost (IBCC) design fails to account for the tech sector’s unique economic model, where rare breakouts generate the vast majority of net economic returns, making standard historical averages inappropriate. Q-CTRL, a venture capital-backed company with more than 220 staff and clients including IBM and Airbus, warns the proposal creates a non-competitive tax environment relative to the US and UK. “We regret that in its current form the IBCC fails to deliver a globally competitive tax environment for the critical startup sector, undermining a Future Made in Australia,” the company states in a response to government consultation. TIME recently named Q-CTRL one of the ten most influential innovative companies globally, alongside SpaceX.
Q-CTRL’s Position on Startup CGT Reform
Q-CTRL argues the proposed Indexed Benefit Cap Cost (IBCC) structure violates the core principle of ‘no disadvantage’ stipulated by the Prime Minister for the startup sector, framing the debate as a direct challenge to government assurances. The company’s detailed response to the consultation paper highlights a potential disconnect between the IBCC’s intent to encourage investment in startups and its likely impact on attracting and retaining talent within a globally competitive landscape. This is not simply about protecting high earners; the company emphasizes that attracting and retaining talent is a structural necessity for the entire venture capital-backed startup ecosystem to function effectively. The firm points to a significant disparity in effective capital gains tax rates between Australia and the United States, specifically referencing the US Qualified Small Business Stock (QSBS) framework, which offers a 100% federal tax exclusion on gains up to USD $15 million.
According to Q-CTRL’s analysis, the gap in effective tax rates could reach as high as 35 percentage points at the QSBS cap, potentially incentivizing founders and early employees to relocate to the US. This disadvantage extends beyond founders, impacting the ability of Australian startups to compete internationally and retain skilled personnel in the face of existing brain drain. Q-CTRL illustrates this with a comparative table showing marginal tax rates for different share sale values under the old scheme, current legislation, and the proposed IBCC, revealing a potentially higher tax burden for Australian entrepreneurs achieving even modest success. Q-CTRL believes that simple modifications can restore sector-wide confidence and ensure Australia remains competitive. Recognized globally, TIME recently named Q-CTRL one of the ten most influential innovative companies alongside SpaceX, and the company observes that the IBCC undermines the Government’s legislated commitments to national innovation, but does not reverse progress made since 2016 when major tax changes began to allow Australian startups to compete globally.
Among tens of thousands of modest Australian startups we find generational outliers like Canva and Atlassian and many dozens more achieving global reach, rapid growth and extraordinary enterprise valuations.
Quantum Tech Scaling from an Australian Base
Quantum technology firms scaling operations from Australia face a complex tax environment that threatens to undermine national innovation ambitions, according to detailed feedback provided by Q-CTRL to the government’s consultation paper on capital gains tax reforms. This is not merely a concern for high-earning founders; Q-CTRL emphasizes that the system must also support the potential returns for early-stage employees taking significant risks in deep-tech ventures. A comparative table provided by Q-CTRL demonstrates a potential gap of as high as 35 percentage points in effective capital gains tax on startup share sales at the QSBS cap of US$15 million, which is approximately A$20 million, creating a significant disincentive for founders to build in Australia. Q-CTRL, recognized globally, recently named by TIME as one of the ten most influential innovative companies alongside SpaceX, believes simple modifications can restore sector confidence and ensure Australia remains competitive.
The company’s perspective is informed by its experience scaling deep tech from a domestic base, supplying critical capabilities to AUKUS partners in areas like advanced computing and national defense. Founded in 2017 and now boasting more than 220 staff with international offices, Q-CTRL’s commercial successes, including contracts with IBM, Airbus, Lockheed Martin, and HSBC, provide a unique perspective on the practicalities of scaling deep tech businesses from an Australian base.
The US framework provides a 100% federal tax exclusion for eligible gains up to USD $15 million, or 10 times an investor’s cash basis, and applies a maximum federal rate of approximately 23.8% for gains above this threshold.
Founded in 2017 and now boasting more than 220 staff with international offices, Q-CTRL’s commercial successes, including contracts with IBM, Airbus, Lockheed Martin, and HSBC, provide a unique perspective on the practicalities of scaling deep tech businesses from an Australian base.
Atlassian employs approximately 3,500 workers across its Australian operations. Assuming a conservative technology-sector salary baseline of AUD $180,000 per worker, this single domestic employee pool generates an AUD $630 million payroll.
The success of deep tech startups isn’t measured in incremental gains, but in exponential growth, a dynamic often overlooked in conventional economic modelling and now potentially jeopardized by proposed tax reforms. Traditional industries operate on a linear scale, whereas technology companies are driven by this exponential growth, meaning that a small number of exceptionally successful ventures generate the vast majority of economic returns, effectively subsidizing the failures and modest achievements of the broader ecosystem. The firm’s analysis reveals that the IBCC could undermine the Government’s legislated commitments to national innovation, but not reverse progress made since 2016 when major tax changes began to allow Australian startups to compete globally.
The perception that tax policy impacts all businesses equally is increasingly challenged by the realities of the modern tech sector. According to Q-CTRL, the core of the problem lies in applying historical averages to an industry defined by outliers. Q-CTRL observes that the gap in effective tax rates could reach as high as 35 percentage points at the QSBS cap, creating a powerful incentive for founders and key employees to relocate to jurisdictions with more favorable tax treatment, exacerbating existing brain drain. The company’s analysis reveals that the IBCC undermines the Government’s legislated commitments to national innovation, potentially hindering Australia’s ability to compete on the global stage.
