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Taxing personal capital gains: Operating cost implications paper

Published on 01 Jan 03 by Australian Tax Research Foundation

This study investigates the impact of aspects of tax design on the operating costs of the tax system. It focuses on the Australian and UK regimes for taxing the capital gains of individuals, and contends that the compliance burden faced by personal taxpayers and the administrative costs incurred by revenue authorities are directly influenced by the design of the capital gains tax ("CGT") regimes in each country.

The study suggests that recent Australian changes to the CGT regime (particularly the removal of indexation and averaging provisions) are not perceived to have helped to alleviate the compliance cost burden, although the introduction of the 50% CGT discount has not exacerbated the problem. In contrast, the recent introduction of taper relief in the UK is unequivocally perceived by practitioners in that  country to have increased CGT compliance costs. Partially as a result of this, the study shows that the contention that Australian CGT compliance costs are higher than those in the UK cannot be confirmed.

The study concludes by identifying specific legislative changes that would address many of the operational cost concerns that are evident throughout the study. These include the phasing out of the "grandfathering" exemption together with the introduction of an annual exempt amount, and the rationalisation of business concessions in Australia; and the abolition of taper relief and its possible replacement with a 50% exclusion in the UK. More importantly, it seeks a more principled approach to the taxation of capital gains in both countries, and emphasises that legislative change can and should only be enacted with a full and clear understanding of the operating cost implications of that change.

Author profile:

Author Photo - Christopher Evans
Prof Christopher Evans
Chris is Professor of Taxation and former Head of the Australian School of Taxation (Atax) at UNSW Australia. He specialises in comparative taxation, capital and wealth taxation, tax law and administration, tax policy and reform. His PhD from UNSW was a comparative study of the operating costs of taxing capital gains. He also holds a master’s degree in European Political Integration from Leicester University and a Bachelor’s honours degree in Economics from London University, as well as postgraduate educational qualifications from Leeds University. He has researched and published extensively in taxation, and is a co-author of Australian Taxation Law and Cooper & Evans on CGT. He is General Editor of Australian Tax Review and Editorial Board member of other journals. He has served on a number of governmental and professional body committees and working parties in Australia and overseas, including the UK’s Mirrlees Committee and the HMRC International Panel on tax administration. Current at 04 July 2014 Click here to expand/collapse more articles by Chris EVANS.
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