Capital gains tax jitters: concessions may change
While 2010 is shaping as a solid year for investors, a potential overhaul of capital gains tax concessions for investors is causing some jitters.
Since the Henry report - a review of Australia's future tax system - was handed to federal Treasurer Wayne Swan before Christmas there has been widespread speculation that it recommends scrapping the CGT discount for assets held for longer than 12 months and replacing it with a new system.
Options thought to be canvassed in the report include introducing a standard flat rate on capital gains or providing higher tax breaks for those who hold their assets for longer.
The reintroduction of indexation to strip out the impact of inflation on capital gains is also understood to be back on the agenda, after being effectively scrapped about 10 years ago.
Experts argue that rather than simplify the tax system, one of the aims of the review, it would further complicate it.
Under the current CGT regime a 50% discount is available to individuals and beneficiaries of trusts on assets held for longer than 12 months, meaning most people only pay tax at their individual marginal rate on half the gain they make from investments when they sell.
The rule is a major attraction for investors to buy shares, and especially property.
Treasury estimates this CGT concession cost $8.6 billion in 2008-09.
A criticism of the current rule is that a 12-month holding period is too short and does not encourage long-term investment. Some submissions to the Henry review, including that by the Australian Chamber of Commerce and Industry, argued for a "tenure of holding" rule.
The ACCI said there should be a "stepped rate of CGT, meaning the longer and asset is held, the larger the concession". But not everyone agrees. In its submission, the Investment & Financial Services Association said a tiered discount would be more difficult to administer and for individual investors to comply with.
Good news for home owners is that the family home is likely to keep its unique tax-free status. Once the report is publicly released (no date has been given as yet) Money will analyse what the changes will mean for our readers.
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