A sacred cow of the Australian tax system might be on the chopping block with a proposal to tax profits on the sale of houses over $2 million being floated by the Australia Institute.
The AFR reports the Institute, in a paper to be released later today, has found that low-income households garner almost no benefit from Australia’s capital gains tax (CGT) exemption on the family home. That’s in contrast to wealthier Australians who are estimated will receive around $46 billion in 2015-16 and $189 billion by 2020 the Institute says.
The removal of the CGT exemption for houses over $2 million could generate up to $12 billion over four years, Institute modelling suggests.
Key to the efficiency of the change is that the measure would be well targeted. Australia Institute executive director Ben Oquist said:
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.
No doubt if you live in Sydney and some parts of Melbourne a $2 million cap might feel a little too low. Many people whose houses have drifted up and through this threshold on the back of the property boom would not consider themselves wealthy.
That makes the politics of the cap potentially problematic.
But at a time when federal treasurer Scott Morrison is looking for ways to overhaul the budget and get the government’s finances heading back towards the black the suggestion might find traction in Canberra.
That’s particularly the case because the report says the CGT exemption on the family home is costing the Federal budget more than defence, education and Medicare.
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