Source: The Tax Specialist Journal Article
Published Date: 1 Aug 2016
Although at the cost of simplicity, the design of the capital gains tax (CGT) regime is aimed at enhancing the ideals of horizontal and vertical equity, economic efficiency and fiscal adequacy. However, with the introduction of the CGT general discount (CGT discount) in 1999, satisfaction with such tax policy criteria has proven particularly difficult, if not impossible. The broad availability of the CGT discount together with the distortive effects of a realisation based tax incidence have led to personal capital gains being taxed on a highly concessional basis.
This article discusses the rationale for the introduction of a CGT system and considers how the CGT discount has created significant additional distortion and complexity within the tax system thereby undermining the equity foundations on which the CGT regime was built. The article considers how this distortion may be reduced with the author concluding that, while a CGT regime plays a vital role in enhancing fiscal adequacy, the CGT discount represents one of the most generous, costly and complex preferences of all.
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