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Opportunity for real tax reform lost in million dollar CGT rewrite

Publication date: 16 Jun 97 | Source: THE TAX INSTITUTE

Although the first instalment of the rewrite of CGT law represents an improvement in the presentation of the current law, taxpayers should not assume that changes, such as clarification of the rules relating to collectibles, represented broader tax reform, warned Taxation Institute of Australia President, Mr Richard Gelski.

"The estimated $1 million cost to government in preparing the rewrite represents only a fraction of the real cost to business in dealing with an overly complex and inappropriate tax model. These costs to business will continue under the rewritten law," Mr Gelski said.

"The Taxation Institute and other professional bodies have produced a series of major joint submissions during the course of the CGT rewrite project to highlight existing deficiencies in the law and proposing major policy changes necessary to boost business efficiency."

"Although the Government has shown some commitment to reform of CGT by honouring its election promise to provide a small business roll-over and retirement exemption, many major changes suggested by the Institute have been ignored in this rewrite," he said.

Some of the major changes suggested by the Taxation Institute and other bodies were:

  • The adoption of a separate CGT Act
  • The removal of the overlap between CGT and income tax
  • Ensuring that CGT should only apply to actual gains, and not to receipts where no real gain has arisen
  • Ensuring that CGT should apply to realised gains
  • A need for general exemption for small gains
  • The provision for indexation of losses
  • A limit on the motor vehicle exemption
  • An off-set of CGT losses against other income
  • A need for a like asset roll-over

Mr Gelski said that what was needed now was a serious review of the issues that have been identified by the Institute as requiring urgent reform.

"A number of issues need immediate attention and addressing the need for rollover relief for corporate mergers is one example," Mr Gelski said.

"It is currently not possible in Australia to merge the assets of two company groups into a single company (owned by the two groups) without gain or loss recognition arising at the time shares are issued to the second group."

"If such rollover relief were recognised it would have the effect of opening up significant opportunities for inter-group mergers and particularly cross-border merges, and so facilitate the globalisation of Australian companies which find it difficult to compete in world markets because they are forced to recognise gain when assets are transferred into merger vehicles," he said