Innovative startups will be able to keep the 50 per cent capital gains tax discount but it remains unclear which firms will be eligible.
An existing capital gains tax concession for small businesses will be expanded and an innovative business discount introduced as Labor tries to ease the blowback from its budget tax changes.
One of four existing small business capital gains concessions, the 50 per cent active asset reduction, will be extended to all businesses with a turnover up to $10 million per year.
The existing threshold was $2 million.
It is the most widely used of the four such concessions for small businesses and 2.7 million existing small businesses will be eligible as a result of the change, Prime Minister Anthony Albanese said on Thursday.
"We back Australian small businesses and the important role that they play in Australia," he told reporters in Sydney.
"They're the blood running through the veins of our local communities, and they're vital for our economy."
The existing 50 per cent discount will also be retained for "innovative businesses", including founders and employee share scheme participants, Treasurer Jim Chalmers revealed.
But it remains unclear which firms would be eligible and consultation remains ongoing.
The changes mean 98 per cent of all active businesses would be eligible to a carve-out from the CGT discount, Dr Chalmers said.
A potential 30 per cent minimum tax on discretionary testamentary trusts, which has been likened to a death tax, will also be scrapped.
"We understand that there's never a unanimous view about economic reform, and particularly about tax reform," Dr Chalmers said.
"It's always contested, it's always contentious, but it will be worth it.
"We are delivering real change here, and it means that the details that we have outlined today will provide a bit more clarity and confidence to investors, more support for small businesses, and also increase those incentives for innovation."
The carve-outs announced on Thursday were set to cost the budget $475 million over the four-year budget period, Mr Albanese revealed, which is about one-seventeenth of the total expected to be raised by the overall tax changes.
Some of the carve-outs were foreshadowed in the May 12 budget.
"Given the unique characteristics of the tech and startup sector the government will consult on the interaction of the capital gains tax reforms and incentives for investment in early-stage and startup businesses," a budget document said.
Labor's initial proposal included removing the existing 50 per cent capital gains discount and replacing it with inflation indexation of the cost base as well as a minimum 30 per cent tax.
Indexing the cost base to inflation means investors will only be taxed on the real gain in the value of the asset they sell.
But this method is problematic for startups and small businesses, which tend to start with a negligible cost base and therefore would receive next to no discount under the proposed change.
That raises the maximum effective capital gains tax rate from 23.5 per cent to nearly 47 per cent, assuming asset holders earn more than $190,000 in the year they realise their gain.
Entrepreneurs and business groups have told a snap two-day parliamentary inquiry into the legislation that the proposed tax changes would smash productivity growth.
Some of Australia's most successful tech companies, including Canva and Employment Hero, would not have survived without the 50 per cent discount, the Australian Investment Council said on Tuesday.
The inquiry will hand down its final report on Friday.
Laws amending the tax treatment of trusts will be introduced to parliament later in the year.
