At a high level, the concept sounds reasonable. If inflation increases the value of an asset over time, only the real gain should be taxed.

The assumption many business owners have made is that indexation will largely offset the removal of the 50% CGT discount.

For founders, however, the outcome may be very different.

Importantly, these measures are proposals only at this stage and remain subject to consultation, legislative drafting and parliamentary approval.

The detail that matters

Under the Government's proposed measures, the 50% CGT discount would be replaced with cost base indexation, alongside a proposed 30% minimum tax on capital gains for individuals, trusts and partnerships.

Importantly, indexation only applies to the cost base of the asset.

For many founders, that creates a challenge.

When a business is established, shares are often issued for a nominal amount. The founder may subscribe for shares for $1, $100 or another relatively small amount. At that point, the business has little or no value.

Over time, however, the founder creates the value. Customers are acquired. Revenue grows. Systems are built. A brand develops. The business becomes worth something meaningful.

None of that value forms part of the original cost base.

Why indexation may have limited benefit

Consider a founder who acquires shares for $100 at incorporation and sells the business ten years later for $8 million.

While indexation may increase the original cost base, the increase is likely to be relatively small when compared to the overall gain realised on sale.

While the exact outcome will depend on inflation rates, the period of ownership and the final form of the legislation, the broader point remains the same. The overwhelming majority of the gain arises from value created after incorporation, not from the founder's original investment.

As a result, indexation may provide only limited relief relative to the size of the eventual gain.

This is fundamentally different to an investor who acquires an asset at market value and holds it over time. In that scenario, there is a much larger cost base available to index.

Why this matters

Founders and investors do not start from the same position.

Investors typically acquire assets with a meaningful cost base. Founders often start with little more than a nominal share subscription and create the value over time.

That distinction sits at the centre of the current discussion.

It also highlights why decisions around ownership and future exit planning are often most effective when considered early.

The takeaway

While the proposed reforms remain subject to consultation and legislative change, they have already sparked an important discussion among founders, investors and advisers.

For founders, the conversation is bigger than indexation alone. It is about understanding how ownership, tax outcomes and future exit strategies work together over the life of a business.

At Crescita, we work with founders, business owners and private groups to ensure these considerations are viewed through the lens of long term objectives and future opportunities.

Whether the final legislation proceeds in its current form or evolves through consultation remains to be seen. What is already clear, however, is that founders should be paying close attention to the discussion.