Family Homes Over $2 Million At Risk!
According to a report released by The Australian Institute, family homes valued over $2 million should not receive any CGT exemptions. Currently any principal home of residence receives a full CGT exemption, regardless of its value.
The independent think-tank also said that such a change can raise up to $12 billion in revenues in four years. This is 50% more than what the country’s highest income earners can offer.
The changes will support the prime minister on this promise that tax reforms will be fair. This also comes at a time when a News Corp’s article claimed that a similar CGT concession was the cause of billions of revenues lost in the past years.
“Each year the cost of the CGT exemption on the main residence costs the federal budget more than Defence, Education or Medicare,” claimed the article via News.com.au.
The report added that the poorest households barely benefited anything from the tax break. Households under this category are those found at the bottom 30 percent.
“Almost 90 per cent of the benefit goes to the top half of income earners while the bottom half only get 11 per cent,” it said. High income households (those in the top 20 per cent) get more than half of the benefit (55 per cent),” explained the report.
“This policy change (would) impact on less than one per cent of home sales while still raising $11.8b over the next four years.”
The study was based on the NATSEM modeling.
“While super tax concessions are often talked about, it’s clear capital gains tax needs reform,” said Australia Institute executive director Ben Oquist via the Australian Financial Review.
“The discount and exemption are costing the budget tens of billions of dollars and while many other areas of tax reform would require compensation for the less well off, such as raising the GST, limiting or reducing the discount or exemption would affect only the very wealthy, be good for the economy and potentially be a multi-billion-dollar budget boost.”
Former president of the Business Council of Australia, Tony Sheperd, thinks that there is a case to be made on the capital gains taxes much like income. He added that capital gains tax exemption on the family home must be considered just like any component of a comprehensive tax review. Officials should also think of the unintended consequences.
“The CGT exemption was designed to encourage home ownership and home building in a country of notoriously poor savers,” said Sheperd.
“Compulsory super has helped but we are still not good savers.”
“If the CGT exemption were removed or reduced then I assume interest on the home mortgage and the cost of maintenance of the family home would become a tax exemption. The government cannot claim a share of the profit on sale and ignore the cost.
“Similarly any losses on sale of the family home would also need to be treated as a tax deduction.”
What do you think?