This new Capital Gains Tax change is appalling and will ruin a core requirement for the Australian economy, growth, innovation, and employment. Tax reform is a must in this country, but tax trash is the worst thing we could have.

Australia has some of the best tech talent in the world. Just ask Korn Ferry or Heidrick & Struggles when they do global searches for roles offshore and seek Australian tech talent to fulfil those roles. We want them staying here and building great technology companies. Large ones like Atlassian that can compete on a global scale.

Building productive and innovative Australian technology companies is not optional. It is a must. The people who start these companies take enormous financial risk, most betting their entire net worth, or whatever they have, into it, to build something great. They also talk to private equity funds to help raise capital and give away a large portion of their business to get that capital.

Capital is not easy to raise. We are in a global market, competing against everyone else who wants access to capital, and due to market volatility capital has dried up. It is near impossible to get, but when opportunity, capability, and happenstance converge, things can happen.

What Australia has built from zero to hero

Here are a list of just some of the great companies that Australia has started from zero to hero. Afterpay, Canva, Linktree, Airwallex, SafetyCulture, Employment Hero, Go1, Culture Amp, Octopus Deploy, A Cloud Guru, Mr Yum, Buildkite, Ignition (formerly Practice Ignition), Eucalyptus, Stake, Mantel Group, Auror, Vow, Edrolo, Pet Circle, Deputy, Atomos, Tritium, Aconex, Altium, Nearmap, Envato, and MessageMedia.

The most recent Capital Gains Tax that has just been proposed by the current Australian Government has just made it harder for Australia to compete globally. The people who work 16 hour days to build these companies, fight to get access to capital, employ people, if they fight the odds and build something successful, this is what now happens.

“A founder who bets their net worth, raises private equity money, builds a global company, and exits after 2028 pays roughly 28% more tax than someone who exits before 1 July 2027. The incentive structure now actively penalises long term company building.”

The signal to founders and investors

Well done, Australian Government. You have just penalised the very companies needed in the Australian economy. Australia does not exist in a vacuum. We live in a global market. You have just told foreign investors don’t bother with Australia, you are better off going to another country who actually wants you to invest and will actively compete and court you. But not Australia.

You have just told Australian investors who have access to capital that it is not worth it anymore, and maybe they should take their money offshore for the same reasons above.

You have just told the person who could make a real difference in our economy don’t bother starting a technology company in Australia, it is not worth the risk because the return is not there. You have just told every Australian start-up to sell before 1 July 2027.

We used to live in a place where the greater the risk, the greater the return. If you do not want to take risk, you take a paid job. Absolutely nothing wrong with that. I have done that most of my career. But those paid jobs come from people who take the risks.

Both sides of politics own this

Do I actually blame the current Government? Our political system is meant to have a yin / yang balance. Without an alternative Government in place, they can do whatever they want. So it is both sides of politics that have contributed to this.

This impacts everyone. Whether you want to be a beneficiary of earning a paid income (which as I have said, I have done for most of my career) or a business owner that I am now where I am prepared to risk my entire savings to build a company and employ people, this Capital Gains Tax destroys value.

The discretionary trust hit

Next, let us talk about the tax levels the Government is putting on discretionary trusts, often an instrument used by start-up companies. That is now a flat rate tax of 30%. So if you earn $40,000 as a business owner as you are growing your business, your new tax rate is 30%. If you took a job, anywhere, earning $40,000, how much tax do you expect to pay? Let us do the maths.

Worker on $40,000 salary (current and ongoing):

  • Tax-free threshold covers the first $18,200
  • $21,800 taxed at 16% = $3,488
  • Medicare levy (2%) = $800
  • Total tax: A$4,288 (~10.7% effective rate)
  • Take-home: ~A$35,700

Founder pulling $40,000 from a discretionary trust (from 1 July 2028):

  • Flat 30% minimum on the trust’s taxable income
  • Total tax: A$12,000 (30% effective rate)
  • Take-home: A$28,000

“Same $40,000. The founder taking the risk and building the business pays nearly three times the tax of the worker who is not.”

Spending the country into the corner

Oh, and one last thing. If you lose your job, what is the first thing you do? You cut unnecessary expenditure. You stop spending. You do not increase it. So why on earth is our Government increasing spending when we do not have the money? That is why the Capital Gains Tax has come in. Because the government is spending money it does not have. Yes, hard decisions have to be made. Where do you cut costs? But is not that the job of Government? To work through those difficult decisions and explain that to the Australian people that we just spent so much money during COVID that we now have to pay off our government “credit cards”.

The long term impact of all this, I fear, will be devastating to Australians. We will not have tech companies that compete on the world stage. Maybe we have seen the last of the Atlassians?

What you can do

So what can we do about it? Vote. As simple as that. Vote at the next election. And in the meantime, talk to your local federal member of parliament and let them know how you feel.