Tax winter Is coming and this time it's not just super

***“The ravens have been sent”*** Copyright 2026. nextlevelcorporate. nextlevelcorporate prompts, AI generated image.

Introduction

The May 12 Budget didn't stop at superannuation. It came for your business too.

12 months ago, we wrote about the Government's phantom menace tax. Remember? That insidious proposal to hit superannuation balances over $3 million with tax on gains that haven't even been realised yet.

The reaction was loud, and rightly so. That bad tax failed.

But while everyone was watching the super sideshow, this May's Budget quietly and clumsily rewrote the rules of the exit game for every founder, every zero-to-low-cost base business owner, and every private investor in the country. The government broke more promises as it moved Australia closer to a socialist state.

For decades, Australia rewarded the risk-takers. The people who started with nothing, backed themselves, hocked themselves to a lender, built something real, and when the time was right, they and their families got to keep a meaningful share of what they created. That deal is about to be renegotiated. Unilaterally.

The Federal Government's 12 May Budget announced the biggest change to capital gains tax in a generation. From 1 July 2027, if you have built a business largely from nothing, through effort and time, you may soon owe the ATO tax on nearly every dollar of the gain when you exit. Not half of it. Nearly all of it. The 50% discount that incentivised risk-taking and nation building for decades is gone. What replaces it barely helps anyone who started with nothing and built something real.

Essentially, it becomes salary and wage income, predominantly paid at exit. But why take business ownership risk for delayed salary and wage income?

And if you are thinking your discretionary trust structure protects you, think again. The changes hit discretionary trusts directly, and a 30% minimum tax applies from 1 July 2028.

The legislation isn't finalised, consultation is coming and carve-outs are possible. But if this lands as announced, or if a "startup" is defined narrowly for the purposes of a special exemption or advantage, the rules of the exit game change fundamentally. In other words, if you are a zero-to-low-cost-base business that's not a defined startup, you miss out.

The Maesters have prophesied. The ravens have been sent. And below is what they're telling us.

And before you dig in, be aware that none of today's content is, or is intended to be, financial or tax advice.

Here's why the crown cannot be believed

Indexation sounds reasonable in sugar-coated theory. You only pay tax on the "real" gain above inflation. But it's not, and there are two key reasons why.

First of all, very few people who own an investment asset, like a share, only have that one holding. Rather, they own a portfolio that maybe includes shares, ETFs, bullion or crypto. And this is the real problem the government is not talking about.

Under indexation, if one investment goes up and another goes down in the same portfolio, the government strips out the inflation from your winner, so you pay less tax on it, calling it the "real" gain that exceeds inflation, but doesn't give you the same inflation credit on your loser, so your loss looks smaller than it really was because they don't index or increase the loss.

The result? A mixed portfolio of wins and losses gets taxed harder under the new system than the old one, even though the new system was sold as being fair. Real gains are taxed, but only nominal losses are awarded. That's the first problem.

But the new proposals also contain a structural trap that will hit growth business owners and early shareholders of zero-to-low cost-base businesses with disproportionate force.

Here's the problem. For startup founders and high-growth business owners, the cost base of their shares is often nominal or close to zero. Under the old 50% discount, half the gain was tax-free regardless. That actually created a level playing field. Under indexation, because there is almost nothing in the cost base to inflate, the full gain becomes taxable. The indexation mechanism that is meant to protect against inflation taxation provides virtually no protection at all when the cost base is near zero.

The inflation credit that's supposed to protect you provides almost no protection at all. The full gain becomes taxable. For a business owner who has built a $100 million business from nothing, that's not a reform. That's a near-complete tax bill on exit, taxed just like salary and wages, but worse because it's deferred until the exit. This is not just a startup problem. It is a capital lite, zero-to-low-cost-base business problem and to focus just on startups is inaccurate at best and frankly, obscures the extent of the victimisation.

But wait, wasn't all of this meant to be about improving housing affordability?

The housing fix that doesn't fix housing

Yes, the Government's framing for all of this was housing affordability for the younger generation. Worthy goal. Wrong execution. Negative gearing on existing property stays intact so the investor class that was supposedly the target of reform keeps its advantages on current stock. Epic fail.

What changes is the treatment of new builds, which is where it gets perverse. First home buyers and downsizing retirees will now compete in the same new build and apartment market, chasing the same limited supply of newly constructed stock. The younger generation, already priced out of established property, now faces more competition in the one segment that was supposed to open up for them. The policy was sold as levelling the playing field. It shifted the goalposts and left the same players on the field.

Socialist ideology that manifests as a tax grab cannot hope to solve a housing crisis, the seeds of which were planted decades ago by bad policy. And that's up next.

The real reason housing is unaffordable, that a tax tweak won't fix it

Following China's entry into the WTO in 2001, Australia experienced a sustained wave of Chinese investment into its residential property market, driven by the emergence of a wealthy Chinese middle class, demand for safe-haven offshore assets, and strong education and migration ties.

Concentrated in Sydney, Melbourne and Brisbane's inner-city apartment markets, this capital boom fundamentally reshaped new build pricing across a generation. Chinese capital controls in 2017 cooled the surge, and the current two-year ban on temporary residents buying established dwellings has pushed foreign buyers exclusively into new builds, the same market the Government now expects to solve housing affordability.

Layer on top of that the structural realities that never go away: chronically high labour costs, elevated energy prices, and a building materials market that remains stubbornly oligopolistic with limited competitive pressure on margins and, in many areas, a reliance on imported materials and products. These are the forces that built the housing shortage.

Negative gearing didn't cause it, but it acted like wildfire, giving investors a tax-subsidised afterburner, pushing prices beyond the reach of anyone without an existing asset base.

The result has been a multi-decade affordability problem with deep structural roots.

And you don't have to be a Maester to know that a CGT tweak that increases who competes for new apartments, adding downsizing retirees to the queue alongside first home buyers and eligible foreign buyers, doesn't address a single one of those root causes.

You cannot tax-policy your way out of a supply, cost and materials import reliance problem, and Canberra knows it, or should. And for that matter, none of this has a hope in seven hells of fixing our punitively high-income tax and low-GST mix. Or royalty rates. No. That would be real tax reform and about as repugnant to Government as Sir Bron asking for coin to rebuild the brothels of Kings Landing.

The discretionary trust trap

If you are sitting back thinking your discretionary trust structure insulates you because you can split the gains, think again. The Budget proposes a 30% minimum tax on trust capital gains from 1 July 2028, payable by the trustee.

There's a rollover pathway, but it costs you the structural flexibility that made your trust valuable in the first place. The two remaining options, fixed trust and company, both leave you worse off than where you stand today.

Under these proposed laws, discretionary trusts are as dead as Ned Stark.

Ten things that could happen next, some or all

Policy changes of this magnitude rarely produce only the outcomes intended. Here's what we see coming. In some circumstances, multiple elements could happen at the same time.

A rush to sell before July 2027. Zero-cost-base business owners who were planning a three to five year exit runway may reassess, compressing the M&A pipeline into the next 12 to 18 months as motivated sellers accelerate timelines. Same goes for many investors with investment assets in discretionary family trusts.
Capital flight and re-domiciliation. Singapore, the UAE and New Zealand all offer structurally more founder-friendly exit environments with no CGT and for younger founders without deep personal ties, the calculus for staying has materially changed.
Capital crowds into tax-advantaged structures. Investors will now consider rotating toward superannuation, corporate structures and ESVCLP vehicles, not always because those are the best opportunities, but because of tax arbitrage, which risks sending money to the wrong places.
Pre-revenue companies shut early. For business owners burning cash with no current revenue and now facing a much heavier exit tax calculus, the marginal case for continuing gets harder, and a largely socialist-leaning Australia loses the future value of those businesses.
Employee share schemes become harder to design. If the expected after-tax value of equity packages falls significantly, the implicit salary sacrifice embedded in a startup role looks less attractive, and Australian growth companies lose ground in the global war for talent.
Investors push for earlier liquidity. Angels, family offices and early-stage VCs will have less patience for long hold periods where indexation provides minimal benefit, increasing pressure on boards for earlier exits, secondaries or structured buybacks.
Well-capitalised acquirers gain the upper hand. Where business owners are motivated to exit quickly, the natural beneficiary is private equity and corporate buyers with cash, who will offer speed and certainty, and price the seller's urgency into their bid.
Trust restructuring creates compliance drag. The concurrent changes to CGT and trust taxation mean business owners, investors and their advisers are navigating two structural problems at once, adding cost, distraction and uncertainty until the legislation is finalised.
Exit multiples and price. A market that knows sellers have a ticking clock will negotiate accordingly, and the business owners who built for the long term may end up with the outcomes that someone else designed for them.
The IPO question reopens, but the liquidity isn't quite there yet. For larger businesses with institutional-grade financials, a pre-July 2027 listing provides a liquidity event at current CGT rates, which may revive ASX interest, but for most, IPO conditions don't really exist.

What now?

The legislation hasn't passed Parliament and consultation is coming, so this isn't yet written in stone. The startup sector was vocal within days of the budget and the Government has indicated it will consult, which may produce some carve-outs. But the Prime Minister has warned any carve-outs or changes will be very narrow indeed. In other words, he is signalling that it will be for startups only, which means all other zero-cost-base businesses will face the long-handled axe.

But "wait and see" is not a strategy when the structural decisions, namely how shares are held, whether to accelerate an exit, how to sequence capital events, take time to design and execute properly, and the window is finite.

Here's who we can help, depending on what you need:

If you are a zero-to-low-cost base, high growth business in start-up or scale-up mode, and you are now thinking about an exit. In this case, the question is not whether to sell, it's whether the current macro environment, with the right buyer and the right structure, produces a better net outcome than waiting. We work with you on that strategic and financial analysis, and where a transaction makes sense, we run the process. And if you're not genuinely buyer or investor-ready, our sister firm pitchhawk can help get you there.
If you have already decided to sell. The decision to exit is only the first call. Constructing the best strategy around when, where, how and to whom is where the real value is made or lost. This is an expertise question, not a workflow question. The sequencing of a process, the choice of buyer universe, the jurisdiction in which a transaction is structured and manifested, and the ability to create genuine competitive tension around your asset are the variables that determine whether you walk away with the outcome you deserve, or the outcome someone else designed for you.
If you are a scaleup considering an IPO or aggregation strategy. A structured sell-down, a roll-up into a listable entity, or a structured fundraising from an aligned source of capital that resets the ownership structure can all be powerful tools in this environment, whether that's selectively on ASX or an overseas exchange. Where markets, sponsors, underwriters and brokers are conducive, we design and execute those strategies.
If you run a professional services practice and believe AI is coming for your cost base. The private equity-backed consolidation wave already underway across accounting, legal, financial advisory, healthcare and other professional services has come at a good time. Not because those investors are intent on changing the world for the better, but because AI systematically destroys the labour cost base that made these businesses expensive to run, which makes them dramatically more attractive to aggregators and roll-up vehicles that can replace that cost base at scale. If you have built strong client relationships, recurring revenue and a defensible niche, you may be sitting on something worth considerably more to a well-capitalised acquirer than it is to you operating independently. If you have been thinking about it and want to beat the changes, we can help, and the time to plan and test is now.
If you are a buyer, aggregator, consolidator or investor looking for opportunity. Motivated sellers create a market. Growth businesses that would not previously have been available, and which could add the missing element to your corporate development strategy, whether that's a merge, consolidate, bolt-on, tuck-in, acquihire or similar, may now be. We identify the flightpath that aligns with the current macro as well as your specific strategy and help you move quickly. Now may be the time to pursue that consolidation.
If you are about to embark on a strategy or corporate development plan refresh. There will be winners and losers out of these proposed changes. The changes will cause headwinds for some and tailwinds for others. If you are looking to leverage the situation, we can help.

The above discussion was the central topic in our Winter edition of NextPerspective, our quarterly client newsletter where we go deep on the macro forces reshaping the deal environment for founders, investors and growth businesses. If you want the full picture in future editions, subscribe to NextPerspective here. And if this note tracks with your situation or your clients', we'd welcome a conversation.

The Starks were right. The ravens have been sent. Tax winter is here.

See you in the market 🖐

Mike

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