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Taxation of assets and asset income

Taxation of assets and asset income. Background comments Chris Evans. Major types of asset taxation. Taxing the stock of capital/wealth Capital levies (rare) Annual wealth taxes Land taxes Council rates Taxing the transfer of capital/wealth

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Taxation of assets and asset income

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  1. Taxation of assets and asset income Background comments Chris Evans

  2. Major types of asset taxation • Taxing the stock of capital/wealth • Capital levies (rare) • Annual wealth taxes • Land taxes • Council rates • Taxing the transfer of capital/wealth • Death and gift taxes (donor-based: estate duty; or donee-based: inheritance tax) • Stamp duties • Taxing the appreciation of capital/wealth • Capital Gains Tax (CGT)

  3. Major types of asset taxation in Australia • Taxing the stock of capital/wealth • Capital levies (no) • Annual wealth taxes (no) • Land taxes (yes) • Council rates (yes) • Taxing the transfer of capital/wealth • Death and gift taxes (donor-based: estate duty; or donee-based: inheritance tax) (no) • Stamp duties (yes) • Taxing the appreciation of capital/wealth • Capital Gains Tax (CGT) (yes)

  4. 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

  5. Revenue from CGT

  6. Priorities for reform • 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) • Death taxes • Should they be re-introduced? (don’t be kind to the dead!) • Annual wealth taxes • Should they be introduced?

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