The Institute of Financial Professionals Australia (IFPA) has urged the federal government to consider all of the economic and financial consequences possible before it commits to changing the capital gains tax (CGT) rules.
In particular, the industry organisation has called for Canberra to consider what impact such a change to the CGT legislation would have on everyday taxpayers, small businesses, retirees, the rental market and broader investment confidence.
The caution comes as the Senate Select Committee on the operation of the CGT discount approaches the deadline (17 March) for the release of its final report.
“CGT reform is not an academic exercise. For Australian taxpayers, the CGT discount touches retirement planning, investment decisions, business succession and household balance sheets,” IFPA president Scott Heathwood noted.
“Australians are already dealing with cost-of-living pressure and housing stress. The last thing we need is rushed tax policy that creates fresh distortions or drives investment behaviour in the wrong direction.”
Issues under consideration are proposals to reduce the current discount rate or the introduction of a staggered discount linked to how long an asset has been held.
IFPA also pointed out changes to CGT settings will most likely have knock-on effects in relation to rental supply, mobility, on whether people sell assets at all and on how small business owners plan for succession.
“If reform is on the table, it must be grounded in evidence, not wishful thinking,” Heathwood said.
The Senate committee’s terms of reference include the contribution of the CGT discount to inequality, especially as it relates to housing, given claims it could be funnelling investing into housing at the expense of homeowners.
The professional body indicated thought must be given to CGT at a structural level, rather than simply tweaking the discount, if the government is serious about reforming this segment of the tax system.
“Australia could examine whether a more distinct taxing regime for capital gains, separate in design, could better align the tax rate and treatment with the nature of the gain and the taxpayer profile, improving transparency and outcomes,” Heathwood explained.
