The government’s proposed changes to capital gains tax rules for property investments just continue to add complexity to an already complex tax system.
It is being reported that the government is considering changing the CGT discount by either reducing the rate from 50% to 25% or adopting a phase-in model where the full 50% discount is achieved after a number of years of ownership rather than just one. Importantly, the proposed change would only apply to property investments.
Assessing the rate of the CGT discount is a policy matter, and governments can change their policy positions over time. The concern is the motivation for the change. Changes in tax laws which will affect investment decisions should be made based on longer term policy objectives, not in response to short term budget pressures.
When a change is made in the tax laws, the change should apply with as few exceptions as possible. Exceptions in tax laws equate to complexity and to cost. We know that complex and costly tax laws impede business growth and investment. They also result in uncertainty for taxpayers and in avoidance opportunities arising.
The proposed change would apply only to property, by which it can be assumed is meant real property. Will it apply to all real property, or just residential property? What about commercial property or farms? If I invest in a listed property trust is that caught? What about an unlisted property trust? What if the entity has both real property investments and other investments like businesses, shares, etc?
In the long term, how and where the government receives its tax revenue from will not be where it will came from in the past. The solution to falling tax revenues is not the introduction of ad-hoc measures, but to look at the overall tax system to make coordinated, well thought through changes.
It is time for genuine tax reform.