CGT changes could incentivise investment in risky start-ups, warns SavvyWise

"Under the current ESIC framework, eligible investors in qualifying early-stage innovation companies receive a 20 per cent tax offset on investment and a CGT exemption on capital gains held for up to 10 years," said Pflaum.

For a start-up company to meet the ESIC test under the framework, total expenses must be $1 million or less in the previous income year, and assessable income must be $200,000 or less in the previous income year. The company's equity interests must also not be listed on any stock exchange.

With the government's CGT changes likely to increase the CGT rate on many investments, Pflaum said investments with built-in CGT exemptions are becoming more attractive, irrespective of their underlying risk profile.

Pflaum said the government's tax changes could therefore lead to a distortion in terms of where people invest.

"Show me the incentive and I'll show you the outcome. When you dramatically raise the tax burden on mainstream investments, people don't stop investing. They shift. And right now, where they're being shifted is into companies that most Australians have no business putting money into," he said.

"Most startups don't survive. Encouraging Australians to funnel money into early-stage companies because the tax settings make it look appealing is not a sensible investment policy. It's closer to government-sponsored gambling."

The company is currently in the final week of its own equity crowdfunding raise, having already secured $1.324 million from 369 investors, 39 per cent of whom are practising accountants.

Savvywise, which Pflaum co-founded with Agastya Patel, is valued at approximately $27.5 million and is itself an ESIC-registered company.

The AI research platform is built exclusively for Australian tax professionals and, unlike general AI tools, the platform operates within a ring-fenced environment using only verified Australian tax law, removing the hallucination risk that makes tools like ChatGPT unsuitable for compliance work. The platform currently services more than 150 accounting firms and has surpassed 2,000 registered users.