Source: Australian Tax Forum Journal Article
Published Date: 1 Oct 2022
The taxation of capital gains in Australia involves a suite of concessions for small business owners and a related concession for superannuation fund investments.These concessions are part of the taxation regime for three principal reasons: to stimulate small business investment in active assets, to stimulate the selfsufficiency of Australian retirees, and to create horizontal equity between explicit superannuation complying savings funds and de facto retirement savings implicit in the capital of small businesses. By removing the concessions extended to the capital gains of complying superannuation funds, a central part of the case for small business concessions is also removed. The case is made that the key arguments linking savings to investment to capital formation and associated social premiums in terms of increased economic growth are fundamentally flawed and, as economic efficiency is not materially enhanced by such concessions, the core case for these capital gains preferences fails. The argument from horizontal equity between complying superannuation funds and small business capital gains is essentially a "rider" to the argument from economic efficiency. If the economic argument fails, it follows that the horizontal equity considerations can readily be redressed by the elimination of both preferences. Fur thermore, the small business capital gains tax concessions primarily benefit wealthier taxpayers, and in doing so, fail to improve the fiscal sustainability of Australia's superannuation system. Based on these arguments, capital gains preferences extended to small businesses and superannuation funds should be removed, with no or negligible cost and considerable enhancements in tax system simplicity, revenue base integrity, economic efficiency and fiscal adequacy.
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