Australia’s 50% CGT Discount: Policy Oversight?

Australian Tax Forum, 35(1) : 88 – 107, 2019

Griffith University Law School Research Paper Forthcoming

5 Pages Posted: 10 Apr 2020 Last revised: 26 May 2020

See all articles by John Minas

John Minas

University of Tasmania

Brett Freudenberg

Griffith University - Griffith Business School; Griffith University - Griffith Law School

Date Written: November 1, 2019

Abstract

Since its enactment in 1999–2000, the 50% capital gains tax (CGT) discount has become an entrenched feature of the Australian tax system. The CGT discount is effectively a tax rate preference that, we argue, remains in place despite its tax policy shortcomings. These include that the CGT discount is inequitable from the perspective of horizontal and vertical equity, and it is inefficient in that it may encourage an overinvestment in assets that produce most of their return in the form of capital gains. This article is a critique of the CGT discount which draws on a chronologically organised analysis of the views and commentary on the CGT discount from individuals and organisations outside of government. Views and commentary on the CGT discount are sourced from the news media, submissions to government discussion papers, and other publicly available information. This article critically evaluates the policy basis and evidence for the 50% CGT discount and is, in part, concerned with whether there is an overall justification for the preference. It is argued that the justifications made by policymakers in favour of the CGT discount, at the time of its enactment, lacked sound tax policy foundations. It follows that the case for the CGT discount continuing in its current form is diminished.

Keywords: CGT, Discount, Australia, Tax, Policy

JEL Classification: K34, H21

Suggested Citation

Minas, John and Freudenberg, Brett, Australia’s 50% CGT Discount: Policy Oversight? (November 1, 2019). Australian Tax Forum, 35(1) : 88 – 107, 2019, Griffith University Law School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3555617

John Minas

University of Tasmania ( email )

Newnham Drive
Newnham
Launceston, TAS
Australia
+61 3 6324 3221 (Phone)

Brett Freudenberg (Contact Author)

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Griffith University - Griffith Law School ( email )

Nathan Campus, GU
Nathan 4111
Australia

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