Labor’s capital gains tax debate has revived an old question: How should Australia tax asset gains without punishing investment, work and risk?

My own view is that Australia should return to capital gains tax indexation – taxing real gains, not inflation – while applying the reform without grandfathering, so the additional revenue can help repair the post-Covid public balance sheet.

But that still leaves a separate problem. Australia’s CGT rules are not properly designed for the kind of business formation we say we want: high-growth Australian companies, especially in technology, choosing to start, scale, and stay here.

The problem is not simply the headline CGT rate. It is that our small business CGT concessions belong to an older economic world.

The current law contains a highly generous 15-year exemption. If the conditions are met, a qualifying small business owner can disregard the whole capital gain on an active asset after 15 years. There is no dollar cap on the exempt gain.

But access to that concession depends on narrow gateway tests. A business needs to have an aggregated turnover below $2 million, or a maximum net asset value of no more than $6 million. The exemption also generally assumes an owner aged 55 or over who is retiring, or someone who is permanently incapacitated.

That may make sense for traditional small businesses. It makes much less sense for founders building a fast-growing company in software, artificial intelligence, medical technology, cyber security, advanced manufacturing, or clean technology.

Those businesses do not necessarily mature over 15 years. They may raise capital early. They may be acquired after five, six, or seven years. Their value may lie in intellectual property, software, network effects, data, contracts, or a specialist team – not in plant, land, or conventional balance-sheet assets.

Most importantly, they are mobile.

If Australia’s tax law quietly tells founders and investors that the serious money is better made somewhere else, we should not be surprised when holding companies, intellectual property, senior management teams, and eventual exits are structured offshore.

This is not only a tax issue. It is a national competitiveness issue.

The existing small business CGT concessions also contain a design flaw that deserves far more attention. They operate through cliff-edge gateways. The law does not taper the concession. It switches it on or off.

A taxpayer just inside the $2 million turnover or $6 million net asset gateway may be eligible for extraordinary CGT relief. A taxpayer just outside those thresholds may lose access entirely.

The current law does not cap the exempt gain. It caps the doorway into the exemption.

That may be tolerable if the purpose is simply retirement relief for traditional small business owners. It is poor design for fast-growing, intangible-rich companies whose value can move well ahead of revenue, assets or the founder’s retirement plans.

If the policy objective is to reward genuine long-term business building, the tax law should say so directly. If the objective is only to help very small businesses with retirement succession, then we should be honest that the current concessions are not a serious start-up policy.

Australia should create a modern founder CGT exemption.

The cleanest version would be simple. Reduce the relevant holding period from 15 years to five years. Remove the turnover and net asset cliff-edge tests. Exempt the first $10 million of capital gain on the sale of active founder equity or active business assets, provided the business has been genuinely based and built in Australia. Exclude land from the concession, so the rule cannot become another property tax shelter.

Above the first $10 million, the exempt amount could accrue at, say, $2 million for each additional year of ownership.

The precise numbers can be debated. The principle is more important. Australia should not force a founder to wait 15 years, retire, buy a replacement business, or roll proceeds into superannuation to receive sensible CGT treatment for building a valuable enterprise here. That is not how modern growth companies work.

A capped founder exemption would be clearer than the current 15-year rule. It would say to Australian entrepreneurs: build here, base the company here, hold for at least five years, create real enterprise value, and the first part of your gain will not be taxed. But after that, ordinary CGT principles apply.

That is not a handout. It is a choice about national competitiveness.

The world has changed since capital gains tax was introduced in Australia in 1985. At that time, the archetypal private business was more likely to be a shop, farm, factory, agency, trade, or professional practice. Very large gains could occur, of course – a gold seam discovered under a paddock, for example – but the economy was not organised around software companies that can scale globally from a small founding team.

Today, a company can be worth little in year one, raise capital in year three, employ hundreds by year five, and be under pressure to relocate by year six. If our tax law tells that founder Australia is the wrong place to build and exit, the result is not merely less tax revenue. It is less ambition headquartered here.

None of this means abandoning CGT integrity. The exemption should apply only to genuine active businesses, not passive investment vehicles. It should exclude land. It should require a real Australian connection. It should be denied for artificial restructures designed merely to dress up a portfolio gain as a founder gain.

But the law should be simple enough for founders to understand before they decide where to build.

Australia is fond of saying it wants innovation. It wants productivity. It wants complex, high-value businesses. It wants young Australians to take risks, create jobs, and build companies that can compete globally. The capital firepower needed to back more of them already exists within Australia’s own superannuation system.

If we mean it, our CGT rules should not be designed only for yesterday’s small business exit. They should also be fit for the founder who builds tomorrow’s Australian company.

Peter Robinson is the author of Common Sense for Australia, first published in 2026 under the name Kashmir Pete.