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.
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