A government frontbencher has all but killed a proposal to apply capital gains tax to the sale of luxury homes by ruling it out before the Coalition even considered it.

Although a spokesman for Treasurer Scott Morrison responded to the proposal by saying the government was engaged in an open debate and consulting widely, frontbencher Steve Ciobo told Sky News the proposal would penalise "the one industry that's actually providing us a strong period of growth.

"There is no magic formula – if you impose more tax, then those extra taxes simply get passed on to consumers," he said.