Capital Gains Tax (CGT) is a tax on the profit made from selling an asset, such as property, shares, or a business. CGT was first introduced in Australia in 1985 by the Hawke Labor government.
What is Capital Gains Tax in Australia?
In Australia, net capital gains are treated as taxable income for that tax year. This applies when an asset is sold or otherwise disposed of. If the asset is held for at least 1 year then any gain is then discounted by 50% for or by 33.3% for superannuation funds.
What are the intentions of CGT?
The main intention of CGT is to ensure that individuals and businesses pay tax on the profits they make from the sale of assets. CGT is also intended to discourage speculation and encourage investment in the long term.
This 50% discount was introduced by the Howard government along with other tax reforms including the introduction of GST. Mr. Howard originally intended to remove the CGT entirely but after asking colleagues to investigate CGT, a report labelled the Ralph Review postulated that for every 1% of tax cut, this would in turn create 1.7% more transactions.This provided evidence to the argument that by cutting the CGT Australia would see an investment boom.
What have been the economic results of the CGT?
However, critics of the halving of the CGT argued that it would benefit wealthy investors at the expense of ordinary taxpayers. They also argued that it would fuel the housing bubble and make it harder for first home buyers to get into the market.
The Sydney Morning Herald in 2004:
“Five years on, all of the arguments used by Howard, Costello and Ralph to support the tax cuts have crumbled. Instead of economic efficiency they helped created a property bubble that threatens the wider economy…They promised to help ordinary Australians but ACOSS research shows that half of the benefits have gone to the top 5 per cent of income earners.”