taxation of assets and asset income background comments chris evans
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Taxation of assets and asset income
Background comments
Chris Evans
Major types of asset taxation
1. Taxing the stock of capital/wealth• Capital levies (rare)• Annual wealth taxes• Land taxes• Council rates
2. Taxing the transfer of capital/wealth• Death and gift taxes (donor-based: estate
duty; or donee-based: inheritance tax)• Stamp duties
3. Taxing the appreciation of capital/wealth• Capital Gains Tax (CGT)
Major types of asset taxation in Australia
1. Taxing the stock of capital/wealth• Capital levies (no)• Annual wealth taxes (no)• Land taxes (yes)• Council rates (yes)
2. Taxing the transfer of capital/wealth• Death and gift taxes (donor-based: estate
duty; or donee-based: inheritance tax) (no)• Stamp duties (yes)
3. Taxing the appreciation of capital/wealth• Capital Gains Tax (CGT) (yes)
Capital Gains Tax (CGT)
• Second most widely introduced tax in latter half of 20th century (after VAT)
• Introduced for reasons of equity (horizontal and vertical) and efficiency (but not simplicity)
• Taxes gains on “assets” on a realisation basis (should be accruals)
• CGT regime riddled with preferences (exceptions, exemptions and deferrals)
• Currently affects roughly 1m taxpayers (mainly individuals) – about 10% of all taxpayers
• Volatile revenue which accounts for less than 5% of all tax receipts – but NB important integrity role
Revenue from CGT
0
2000
4000
6000
8000
10000
12000
1996 1998 2000 2002 2004 2006
CGT ($m)
Priorities for reform
1. The CGT regime• removal of preferences (equity/efficiency)
CGT discount grandfathered status of pre-85 assets (?) small business concessions (?) the main residence (?)
• introduction of an annual exempt amount (simplicity)
2. Death taxes• Should they be re-introduced? (don’t be kind
to the dead!)
3. Annual wealth taxes• Should they be introduced?
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