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Chapter 11: Towards a more competitive regime for taxing capital gains

Current arrangements

The current taxation system taxes real capital gains at marginal rates. There are some concessions for small business.

Capital gains are generally taxed more heavily in Australia than in most overseas countries and this may discourage national savings and investment and may constrain wealth creation, new business formation and employment opportunities.

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Key policy considerations
Would CGT relief encourage savings and investment? Would CGT relief produce net economic benefits? Would CGT relief encourage long-term investment? Would CGT relief encourage high-risk investment? Would CGT relief attract mobile international capital? Should small business CGT concessions be rationalised?
An increase in overall investment is likely
but there will also be some influence on investment decisions.
Lower CGT rates may reduce lock-in effects and improve capital mobility. Patient capital may be encouraged by a lower CGT. Some high-risk investment may be discouraged by current CGT arrangements. Australia’s CGT system is seen to impede some forms of foreign investment. Existing concessions have the same underlying objectives but are complicated.
A strategy for reform

To achieve a balance between encouragement of investment and attracting capital, on the one hand, and collecting an appropriate contribution to revenue on the other, the Review proposes for consultation a range of reform options.

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Reform options Option
30 per cent capped rate for individuals.
Option
Stepped rate for individuals.
Option
Alternative approaches to lower CGT rates.
Option
$1000 CGT-free threshold for individuals.
Option
Scrip-for-scrip rollover relief.
Option
Targeted concessions for certain types of investment.