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Capital gains

– eg, capital gains tax; dual income taxes
– see also Assets; Land; Personal income

Capital gains tax by electorate

Matt Grudnoff, The Australia Institute (May 2017). New research from The Australia Institute has found that the Prime Minister’s electorate is the biggest reaps the greatest benefit from capital gains tax discount, by a large margin.

CGT discount expected to cost the budget $9.6 billion dollars this year (2016-17) $44 billion over the next four years. Historical data also shows that, in combination with negative gearing, CGT has contributed to Australia’s housing affordability crisis.

Federal Government must not let us down – ACOSS and National Shelter release 6 point National Housing Affordability Plan

ACOSS (April 2017). With Federal budget speculation growing, ACOSS and National Shelter today urged the Federal Government not to shirk its lead responsibility to address the housing affordability crisis affecting millions across the country and increasing financial risk to the national economy.

‘The Federal Government must grasp the housing affordability crisis with both hands and put in place the right policies for the future.” said Dr Cassandra Goldie, ACOSS CEO.

Recent speculation of a Government retreat, and various proposals that lack broad support – including widely criticised ideas such as using super to fund housing deposits – suggest some within the Government view this task as beyond them. It is not. There is broad expert consensus about what needs to done.

Releasing today its 6 point “Housing Australia’s People: A Serious Plan’”, ACOSS and National Shelter set out a comprehensive package of reforms that would deliver growth in social and affordability housing for people on low and modest incomes and take the heat out of the open housing market for all.

The bunching of capital gains realizations

Timothy Dowd and Robert McClelland, Urban Brookings Tax Policy Center (February 2017).  This paper models taxpayer decisions to realise or delay their capital gains and losses. Its authors use a unique data set of capital asset sales to examine the shifting of gains across time periods with different tax rates, but eliminates the effect of the large pool of accrued gains that enlarge previous estimates. They find strong evidence that taxpayers realise fewer gains in the weeks prior to reduction in tax rates. However the magnitude of the responses are small. They find that high income taxpayers are more responsive than others and that taxpayers reduce their tax liability by pairing gains and losses.

Hot property: negative gearing and capital gains tax reform

John Daley and Danielle Wood, Grattan Institute (April 2016). Long overdue changes to negative gearing and capital gains tax would save the Commonwealth Government about $5.3 billion a year. The interaction of a fifty per cent capital gains tax discount with negative gearing distorts investment decisions, makes housing markets more volatile and reduces home ownership. The two measures in combination allow investors to reduce and defer personal income tax, at an annual cost of $11.7 billion to the public purse. Other taxes, which often drag more on the economy than a capital gains tax does, must be higher as a result. And like most tax concessions, these tax breaks largely benefit the wealthy.

Tax Concessions By Age

Matt Grudnoff, The Australia Institute (February 2016). The Australia Institute has released data from modelling commissioned from NATSEM together with ATO statistics which show that young Australians are receiving little benefit from three of the budget’s most expensive tax concessions.
“Australians under 30 years of age receive only 6.4% of the combined tax concessions on superannuation, the capital gains tax discount and negative gearing,” Executive Director of The Australia Institute, Ben Oquist said.
“In total these concessions are worth more than $37B yet the young receive only $2.4B of their value.
“The capital gains tax discount and negative gearing are particularly unfair for the young, with the under 30s taking approximately 1% of the benefit of tax breaks worth $7.7B a year and climbing.
“It is a double hit for the young with many being priced out of the home owning market in part because of the very tax concessions they are mostly missing out on.
“It is often argued that tackling tax concessions is politically difficult, but the reality is that the bulk of the concessions flow to a relatively small proportion of the population and this is particularly true when it comes to younger Australians.”
“Australia has a revenue problem. A 2016 Budget that fails to recognise this will lack fiscal responsibility, economic credibility and fairness – particularly for younger Australians.
“Tackling tax concessions will not just be good for the budget and fairness, we now know it will help level the playing field for the young who get little from our distorted tax system.
“The Government has made much of the importance of intergenerational equity, there is nothing equitable about retaining expensive tax concessions that deliver a fortune to wealthy members of certain generations and virtually nothing to younger generations,” Oquist said.

Should Capital Income be Taxed? And if so, how?

Dr David Ingles, Tax and Transfer Policy Institute (August 2015).  There are three main approaches to taxing capital income, being the income tax, the expenditure tax – which effectively exempts most capital income – or hybrids such as the rate of return allowance (RRA). This paper considers the theoretical arguments for taxing capital income less than fully, and finds that they need to be qualified. A strong case can be made for at least taxing that component of capital return which is above the risk-free rate (e.g., the bond rate). While the RRA favoured by the Mirrlees Committee does this, it is administratively cumbersome and the author proposes a new approach called the Z-tax which uses cash-flow tax principles to arrive at an end result which can be made similar to the RRA.

Taxation of Dividend, Interest, and Capital Gain Income

Michelle Harding, OECD (November 2013). This paper provides an overview of the differing ways in which capital income is taxed across the OECD. It provides an analytical framework which summarises the statutory tax treatment of dividend income, interest income and capital gains on shares and real property across the OECD, considering where appropriate the interaction of corporate and personal tax systems. It describes the different approaches to the tax treatment of these income types at progressive stages of taxation and concludes the discussion of each income type by summarising the different systems in diagrammatic form. For each income type, the paper presents worked calculations of the maximum combined statutory tax rates in each OECD country, under the tax treatment and rates applying as at 1 July 2012. These treatments and rates may have changed since this date and the paper should not be interpreted as reflecting the current taxation of capital income in OECD countries.

Associate Professor Miranda Stewart Statement of Reform Priorities
Miranda Stewart (September 2011)

Miranda Stewart’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Submission on removing tax barriers impeding the use of Special Disability Trusts
Trustee Corporations Association of Australia (23 August 2011)

Submissions explaining how removing tax barriers would improve the attractiveness of Special Disability Trusts.

Submissions on a Capital Gains Tax exemption for Special Disability Trusts
Carers Australia (23 August 2011)

This submission outlines how removing income tax impediments would increase the number of special disability trusts being utilised.

Summary of ACOSS proposals, Henry Review recommendations
Australian Council of Social Service (5 Apr 2011)

This is a brief summary of the Henry Review’s key tax reform proposals and compares them with those advanced by ACOSS, and the Government’s response.

The Very Rich and the Tax Code (USA)
Roberton Williams, Tax Policy Centre (19 May 2011)

Roberton Williams, Senior Fellow at the Urban-Brookings Tax Policy Center, talks about the historically low tax rates currently paid by the richest U.S. taxpayers, why taxing the rich by itself won’t bridge the budget gap, and why raising taxes on capital gains is a complicated policy option.

Tax Equity: Reforming Capital Gains Taxation in Australia
David Ingles, Australia Institute (April 2009)

Discusses the concessional taxation treatment of capital gains and possibilities for reform.

The Case for Restoring Capital Gains Tax Neutrality
Ian McAuley, University of Canberra and Centre for Policy Development (May 2009)

Argues the current systme of taxing capital gains is inefficient and equitable, and discusses possible reforms.

Towards a Better Taxation of Savings
Ken Henry, Secretary to the Commonwealth Treasury (1 October 2009)

Speech to the Australian Conference of Economists Business Symposium on the taxation of the personal capital income including savings, assets and superannuation.

Progressive Tax Reform: Reform of the Personal Income Tax System
Australian Council of Social Service (November 2009)

This report advocates strengthening the personal income tax system in order to achieve progressive tax reform. It covers topics such as personal income tax rates, consumption taxes, company income taxes, taxation and saving, taxation and the transfer system.