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  • Reforming Australia's 50 per cent capital gains tax discount incrementally

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    Author(s)
    Freudenberg, Brett
    Minas, John
    Griffith University Author(s)
    Freudenberg, Brett D.
    Year published
    2019
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    Abstract
    This article considers concerns about Australia's capital gains tax (CGT) discount (providing generally for a 50 per cent discount on taxation of gains of resident taxpayers other than companies from disposal of assets held for more than 12 months) related to fiscal adequacy, and horizontal and vertical equity. We argue that, based on these concerns, there is a case for reform of the CGT discount. In considering reforms, there are two broad choices available to policy-makers. The CGT discount could be reformed by way of an incremental approach or, in the alternative, through its complete removal and replacement with new ...
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    This article considers concerns about Australia's capital gains tax (CGT) discount (providing generally for a 50 per cent discount on taxation of gains of resident taxpayers other than companies from disposal of assets held for more than 12 months) related to fiscal adequacy, and horizontal and vertical equity. We argue that, based on these concerns, there is a case for reform of the CGT discount. In considering reforms, there are two broad choices available to policy-makers. The CGT discount could be reformed by way of an incremental approach or, in the alternative, through its complete removal and replacement with new provisions. In this article, we argue that it may be more pragmatic to adopt the former approach. In the case of the CGT discount, an appropriate incremental reform would be to change the rate of the discount and introduce a non-cumulative annual CGT discount cap. Although there are arguments for abolishing the CGT discount and reverting to the taxation of capital gains at full marginal tax rates, this may be difficult to achieve in practice. The incremental approach has been used successfully in previous tax reforms in Australia and this type of reform does not preclude policy-makers from pursuing the taxation of capital gains at marginal tax rates as a longer-term policy goal. We argue that well-executed incremental reform can help avoid grandfathering of the former provisions and, in turn, avoid the complexity associated with such a rule.
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    Journal Title
    EJOURNAL OF TAX RESEARCH
    Volume
    16
    Issue
    2
    Publisher URI
    https://www.business.unsw.edu.au/research/research-journals/atax-journal/past-issues
    Copyright Statement
    © 2019 Atax, The University of New South Wales . The attached file is reproduced here in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
    Subject
    Taxation law
    Publication URI
    http://hdl.handle.net/10072/384249
    Collection
    • Journal articles

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