The recent 2026 Federal Budget has announced transitional measures to impose:

• the abolition of negative gearing on residential property other than new builds;
• a minimum 30% capital gains tax (CGT) rate; and
• abolition of the general 50% CGT discount with a proposed return to the indexation of cost base as was in place before 1999 before the price increases in residential housing then turbocharged when compared to incomes.

But is this fair?

The announcements have been attacked notably by entrepreneurs who purport to speak for small business start-ups and tech innovators as being anti-business and as a sop to aspiration.

Are they? Can I answer this free of the bias of politics and instead rely on a forty year career advising on Australian taxes understanding that some political parties have aligned themselves with the entrepreneurs’ position?

I suggest:

• their claim that the abolition of the CGT 50% discount hurts small business claim is a furphy. The Federal Treasurer Mr. Chalmers referred to the four small business CGT concessions (small business concessions) and exemptions that can still be applied to reduce the taxable capital gains on CGT assets used actively in a business.[1] Often the reduction in CGT after the small business concessions are applied is to a very low overall rate which leaves little or zero CGT to be paid[2].  Often CGT does not apply to business assets at all[3]. So the entrepreneurs’ fairness gripe should really be about whether the small business concessions are adequate once the CGT 50% discount is taken away and a minimum 30% CGT is imposed by the measures should there be any taxable gain remaining after the small business concessions are applied; and
• it is disappointing that these activists and party political decision makers, who are often diligent in taking accurate professional tax advice on their own affairs, are less concerned whether their views about these measures that impact the rest of us are accurate.

More about this later in this piece but let me:

• first ask: will potential entrepreneurs be deterred from becoming wealthy, or if I should use the euphemism, high net worth? because of high taxes should they make a lot of money or will they be more interested in the opportunity to become wealthy and make the money they will keep? and
• move to what would make the measures fairer and more aligned with the objectives of the measures which I understand to be:
• comparable, or at least more comparable, income taxation of gains from capital with gains from personal exertion: notably that of workers who earn wages and salary; and
• removing tax advantages to investors, which other taxpayers cover or pay for,  of negative gearing and the CGT 50% discount so that young people and others, who principally earn their income from personal exertion, can compete for a limited stock of housing on a more equal footing.

What tax professionals like me appreciate is the tax policy which most distorts housing affordability in Australia is the very generous and complete CGT main residence exemption (MRE) given to ensure the family home isn’t subjected to CGT at all. This is where the disparity been taxation of personal exertion income and gaining from owning property becomes really apparent. Can I say it isn’t necessarily in my professional interest to call out how the CGT MRE becomes a rort. I earn professional income from advising on the lucrative extent of the CGT MRE in complex and borderline cases, and I may continue to do so should the CGT MRE continue as it is.  The CGT MRE legislation I work with reveals that the parliament has gone to great and sometimes surprising lengths to ensure doctrinal integrity of no CGT on the family home[4].

Consider a home presently up for sale at Wategos Beach, Byron Bay. (The owner is not my client; I heard about this in the news). This home was up for sale for $75m but, as of May 2026, the seller is looking for $50-$60m.

The land was purchased for $3.7m in 2014.

Let us assume demolition costs of the shack that stood on the site when the owner bought it and that capital costs of building a mansion on the site were about $10.3m meaning costs of around $14m all up.

Let us also:

• assume that the budget announcements are an otherwise reasonable basis on which gains from property may be fairly taxed: that is by indexing the cost (cost base) of the property to the owner so the owner is taxed on the true gain and is relieved of tax on the impact of inflation on costs accepting that inflationary drift while the property was owned by the owner doesn’t reflect real gain; and
• say this home sells soon for $55m.

The magnitude of capital gain to which CGT could apply, should there be no CGT MRE and after allowing for an upwards inflation adjustment in the cost base, is in the order of $36.5m.[5]

Income from personal exertion/work – nurse lifetime tax comparison

Assume a nurse on a middle income in the low‑to‑mid $80,000s pays, say, $18,000 in income tax per year.[6]

Over a 35‑year career, that’s ≈ 18,000 × 35 = $630,000 of lifetime income tax on, and Medicare contribution by, the nurse.

Now let us compare $17.2m (tax foregone on the $36.5m indexed gain on the Wategos Beach sale) to see how many nurses lifetimes it takes to cover this tax foregone:

17.2 ÷ 0.63m ≈ 27.3.

So 27 nurses’ full working lifetimes of income tax and Medicare payments are needed to make up for the tax and Medicare lost on the indexed and untaxed gain on this one Wategos Beach main residence because the capital gain on the family home is fully exempt under the CGT main residence rules.

I should not pretend this exceptional capital gain at Wategos Beach, which I use to highlight the inequity of the CGT MRE, commonly occurs at these levels around the country. But equally the number of cases where lesser multiples of tax on nurses working lifetimes, say 5 to 15? are being lost in CGT MREs extended are being lost all of over the country should not be understated.

Could the CGT MRE be withdrawn or changed?

Introducing CGT on the family home is political anathema. I infer that an exemption from CGT on the family home was a political cost of introducing the CGT in 1985 just as exemptions on food, education and health came to be political costs of introducing the goods and services tax in 1999.

But if the sale and likely gain at Wategos Beach, Byron Bay reveals anything it reveals the CGT MRE could be altered and be better targeted, at least, so it becomes less exclusive (to home owners) and  regressive. There is a case for limits on the CGT not collected because of the CGT MRE which nurses and other workers, many of whom are unable, or never will be able, to become home owners able to use the CGT MRE, can be called on to cover with their taxes.

To my mind this can be remedied with a CGT MRE cap.

A CGT MRE cap

How would that work? Actually there are already lifetime CGT caps in the CGT small business concessions which the entrepreneurs’ group may think inconsequential but let me return to them later.

A cap on capital gains on homes eligible for the CGT MRE could be imposed on Australian taxpayers on a lifetime basis: singles and couples use of the CGT MRE could be restricted during their lifetime. In other words the MRE could be redesigned so the MRE wouldn’t exempt the whole capital gain on an unlimited basis on every family home a well heeled home owner ever sells but instead limits their lifetime usage of the family home CGT free privilege on the basis that other taxpayers, principally workers and others who earn their living and pay taxes from their personal exertion, are funding and covering for these taxes not paid.

It seems to me, given what I have said about the political toll on whoever may introduce CGT on the sale of the family home, a CGT MRE cap would need to be generous to be palatable.

A generous MRE cap?

A cap has to be big enough so that most ordinary households will never hit it. That is cap policy would need the generosity, courtesy of other taxpayers like nurses, of no CGT on the average home, but the cap would be low enough so that very large gains start to be taxed.

Typical Australian house prices as reflected in median house values are well below $2m even in the big cities; only a minority of properties see multi‑million‑dollar gains over a single ownership.

Maybe caps could be in this range:

• individuals: $2–3 million of real capital gains? or
• couples: in the range of, say, $4–6 million of gains?

depending on whether they too are indexed to ensure they will continue to stand higher than median home prices.

At these levels:

• nearly all ordinary owner‑occupiers, including those in expensive cities who move several times, would still pay no CGT on their home sales over their lifetimes; and
• very large capital gains, like on Wategos Beach, Byron Bay, could still be partially exempt, up to the cap, but most of the gain would be taxable, greatly reducing the number of nurse working lifetimes needed to offset the forgone tax.

These caps would still let people own and sell quite expensive homes tax‑free, while signalling that the CGT MRE is not intended to allow well resourced home owners to shelter many millions of dollars of untaxed capital gains at enormous community cost.

Implementation

To implement CGT MRE caps with a minimum of grandfathering in pursuit of fairness and equity, the home sales caught could be grandfathered to sales of homes, or purchases and sales after certain dates on or after the introduction of a CGT MRE cap regime. But I don’t see reason to grandfather the cap itself. That is historical use, and not just use after introduction of a cap, of the CGT MRE by people can be counted against their MRE CGT cap to ascertain whether they have cap remaining with which they can reduce the CGT on the gain on their next sale of their home.

Not only is there the political challenge of reforming the CGT MRE there is a significant practical problem: Under the Australian CGT system, uses of the CGT MRE have not been reported and tracked by the Australian Taxation Office (ATO). That is capital gains free of CGT made on the sale of homes have not been returned in income tax returns to the ATO. But this problem is not insurmountable.[7]

Using the cap before you buy

The present CGT MRE is of absolutely no use to nurses, workers, and other people who are yet to buy a home to whom the budget measures are meant to be targeted. This is what the “property ladder” and getting “in the market” has been all about – getting on the bottom rung of the ladder with:

• a home to live in; and
• a tax shelter to grow equity in the home tax free thanks to the CGT MRE.

For a yet-to-be-first-home buyer (YTBFHB) who cannot yet afford to enter the housing market, denying access to the CGT 50% discount and a 30% minimum CGT on investment gains stifles the policy intent of measures aimed at assisting their first home acquisition. Saving for a deposit on a first home will be impeded by CGT on investment growth as the individual builds capital through savings and portfolio accumulation. As investments are realised and rebalanced over time, CGT, after the proposed budget changes, reduces the net proceeds available for reinvestment and ultimately diminishes the after-tax capital available to a YTBFHB for a first-home deposit.

As I see it, this is where the CGT MRE cap can help if the cap, or least some of it, is portable strictly to YTBFHBs. That is: why not allow a single or a couple YTBFHB to transfer some of their yet to be used CGT MRE cap to apply to investments in a portfolio being used to fund or finance their first home?

Further I do not follow the need for a 30% minimum CGT which applies under the measures even where a resident taxpayer’s whole assessable income, including capital gains, falls below $45,000 which means capital gains on investments will be taxed at a higher marginal rate than, say, income from personal exertion or income from business activity: the measures are directed at evening up taxation of income from property and taxation of income from personal exertion.  If the policy objective is parity between taxation of gains from property and gains from personal exertion, why replace a CGT discount that taxed capital gains less favourably than labour with a rule that taxes capital gains more heavily than labour?

Under the pre-1999 CGT rules which taxed indexed capital gains, applicable marginal rates were averaged to ameliorate the effect of a capital gain taking a taxpayer into a higher tax bracket. Unlike with the similar minimum 30% income tax which is to apply to discretionary trust beneficiaries, there seems to be no anti-income splitting purpose behind the 30% minimum CGT initiative. Or is the argument taxpayers will deliberately reduce their income in a tax year before they realise property (CGT assets) that have increased in value?[8]

Involved but doable

A CGT MRE cap wouldn’t be a simple evolution of the current CGT law but it would be doable. Nuance would be needed when figuring out to whom the cap applies. If couples are to be assessed against the cap, which seems necessary to stop spouses double dipping for the MRE, there would need to be exceptions for edge cases. For instance where someone who is a YTBFHB:

enters into a relationship and lives with someone who has become a home owner; and

the relationship ends and occupation by the YTBFHB of the home ends after a short time;

that person could be allowed to resume YTBFHB status.

Given allowing every YTBFHB the full generous CGT MRE cap of $2-4m would seriously impact CGT collections by government there is a case for restricting the portable part of a CGT MRE cap considerably further so investments of a YTBFHB, which become CGT free (by the way, more generous than the CGT 50% discount) are limited to say $500,000? $500,000 and saved (taxed) salary may be enough to significantly help a YTBFHB buy their way into a moderately priced first home.

Entrepreneurs, tech founders and the small business concessions

Let’s return to entrepreneurs and the small business concessions. If their point is that the small business concessions are not enough not to stifle aspiration then let us understand more precisely when an entrepreneur or a tech start up founder will qualify for the small business concessions.

The media often reports that the concessions are limited to businesses with turnover below $2 million. The reality is more generous.[9]

Are the aspirations of entrepreneurs and startup founders who may become too wealthy to apply the small business concessions really impacted because of that.[10]

But I struggle to see how this group is more in need of CGT relief than YTBFHBs who presently struggle to buy a home and to whom the budget measures are purportedly directed.

Which aspiration that is more worthy of support by other taxpayers?

The small business concessions lifetime cap experience

Among the small business concessions rules, there is a $500,000 cap which works to limit CGT exemption on small business gains with great similarity to the CGT MRE cap I am canvassing here.  This is the lifetime cap on the small business retirement exemption.[11]

Eligible entrepreneurs can currently access a $500,000 lifetime retirement exemption and have no more than 50% of remaining gains to which the small business concessions apply subjected to CGT on their sale of business goodwill and, where it is subject to CGT, capital interests in intellectual property they own.

As stated the entrepreneurs and tech founders’ criticism hardly reflects their actual experience of the tax law on which they are likely not expert and on which they likely rely on accountants’ advice. Significant categories of intellectual property used in business have never enjoyed the benefit of the CGT 50% discount in the first place., the CGT 50% discount has never been available to reduce tax when selling much intellectual property (IP) applied by tech innovative businesses. Where IP is depreciable viz. where depreciation deductions allow the cost of the IP to be written off over a period of years, gains on sale of the IP over the written down value is assessable as a balancing charge which is not treated as a capital gain under the income tax system.

Entrepreneurs aspirations and indexation

If the concern is truly aspiration, whose aspiration deserves greater support from the tax system: established entrepreneurs seeking lower taxation of realised business wealth, or YTBFHBs seeking to accumulate enough capital to enter the housing market?

Can I suggest that indexation of:

• costs in determining taxable net capital gains;
• the $2m aggregated turnover test and $6m aggregated MNAV test thresholds of the small business concessions perhaps with phase outs; and
• a CGT MRE cap (commencing at $2m?) and its portable part (commencing at $500,000??); and
• the $500,000 lifetime small business CGT retirement exemption cap;

are fairer aspirations and it is YTBFHBs, rather than entrepreneurs and tech innovators, who have the more compelling economic case for shelter from taxes made up for by the taxes paid by other Australians.

[1] the small business concessions referred to are the small business 50% reduction, the small business 15 year exemption, the small business retirement exemption and the small business rollover which take effect under the Division 152 of the Income Tax Assessment Act 1997

[2] where the small business CGT 15 year exemption applies or the small business retirement exemption applies to sub $1m capital gains which in any case is a far lower rate than 50% rate after the CGT 50% discount is applied

[3] most business assets are depreciable plant and equipment so gains on them, should they have value  after their use in a business and being written down, are subjected to assessable balancing charges rather than taxable capital gains

[4] this is particularly apparent in how the CGT MRE rules are extended in the cases of absences i.e. cases where a home owner is not living in their home for a long period, cases where owners are transitioning between homes and to deceased estates and beneficiaries where a home owner has died to keep the CGT MRE at distance from being a “death tax”

[5] The costs of the home to the owner – nominal cost base

Land purchase: $3.7m.

Demolition + new build: $10.3m.

Total nominal cost base: 3.7 + 10.3 = $14.0 million.

Apply indexation from 2017 to mid‑2026

I understand the land was purchased in 2014 with the build costs incurred later. Let’s now say the weighted average time when all costs were incurred was 2017 with the build known to have finished after that. From CPI data, a reasonable index factor from a 2017 average to early/mid‑2026 is about 1.32 (prices roughly 32% higher at the time of sale in 2026).

Indexed cost base to the owner of acquiring and building the home is then: $14.0m × 1.32 ≈ $18.50m.

Indexed capital gain at a $55m sale price

So we have

•              Inferred sale price: $55m.

•              Indexed capital gain: 55.0 − 18.5 ≈ $36.5m.

•              Possible CGT on the sale if it was paid on the indexed capital gain at the top marginal rate plus Medicare (about 47%):  ≈ 36.5 × 0.47 ≈ $17.2m.

[6] This is a rough, ball‑park figure for a full‑time worker in the middle brackets in the Australian income tax system; the actual number depends on taxable income, deductions, and current thresholds. Typical tax plus Medicare per year ≈ $18,000 on a salary around the low‑to‑mid 80,000s.

[7] Despite holding no or negligible historical CGT MRE use data on taxpayers, the government and the ATO has wide and unrestricted access to property information collected in the states and territories. Along with title information about residential property, most Australian state and territory governments have allowed a principal place of residence exemption from their land taxes and so the ATO would have access to a significant trove of data with which to:

•              ascertain and verify how much CGT MRE people have applied to exempt gains on sales of their homes up to introduction of a MRE cap regime and

•              track MRE cap usage in earnest.

Coupled with that the government could require taxpayers, who seek to apply a capped CGT MRE, to complete a once off lifetime main residence return/statement to the ATO which sets out:

•              Australian homes where the applicant for a MRE has lived;

•              the homes among them where the taxpayer has realised their stake in the home; and

•              those homes where the MRE has been used and where remaining lifetime cap to the applicant should be reduced.

[8] the idea that CGT will skew taxpayer behaviour so they will earn less income to bring down their effective rate of CGT, and the CGT system therefore needs to be protected from that by a 30% minimum CGT, is an idea in parallel to the entrepreneurs’ thinking that, with higher CGT on them if that is in fact right, they too will behave to earn less income. The Tax Justice Network has done work on global econometrics which reveal that very few entrepreneurs, wealthy business owners and their acolytes, who may threaten to leave the country after progressive tax changes are implemented in their home country; actually leave – The Millionaire Exodus Myth

[9] Generally speaking a business owner can qualify as a small business owner eligible for the small business concessions where their business has a turnover of less than $2m. An entrepreneur can also qualify to use the small business concessions if they satisfy the $6m maximum net asset value (MNAV) test. This is best simply illustrated with an example. An entrepreneur and spouse who have a business with a turnover of $3m, who fail the $2m turnover test but who have:

•              a home they own worth $8m;

•              personal assets of $1m; and

•              $6m in superannuation between them;

(being excluded assets none of which count against the $6m MNAV) and $5m in other assets net of debt viz. $20m in overall wealth; can still qualify for the small business concessions so long as there are no related entitles, associates and entities related to those associates with further assets which take the aggregated group tested to $6m or over. Or an entrepreneur with twice that wealth and who thus fails the $6m MNAV test but whose business(es) has a turnover of $1.6m can similarly qualify under the $2m turnover test where those same related entitles et al. don’t own businesses which aggregate with that turnover to then take aggregated turnover over $2m in the tax year in which the capital gain is made.

[10] Admittedly the small business concessions have their confronting side – be a few dollars over satisfying either test and fail both the $2m turnover and the $6m MNAV test and the small business concessions are wholly denied to the business owners. That is the business owners won’t be considered eligibly small business. That is there is no phase out. Also the $2m and the $6m used in the respective tests are not indexed and have not been increased for nearly nineteen years since their introduction as basic conditions for the small business concessions. So there may be some fairness case for indexation of those numbers.

[11] Briefly and generally, where the conditions for this small business concession are met, an individual behind a business can be exempted on up to $500,000 in taxable net capital gains on small business assets during their lifetime. So a CGT MRE cap is hardly a novel idea. It too hasn’t been indexed or increased from $500,000 in the nineteen years since the inception of the small business retirement exemption.

The retirement requirements of this small business concession are not demanding: either the capital gains must be paid into preserved complying superannuation where the individual is under the age of 55 years or where the individual has reached 55 they can either pocket the tax fee capital gains of up to $500,000 or pay them into superannuation at his or her option.