Fake News from the Guardian

Here’s what we learnt from The Guardian today:

In 1999 John Howard and Peter Costello halved capital gains as part of a wider tax package after the Ralph business tax review.

Actually, the main change was the way the capital gain was calculated for the purposes of levying tax at the marginal income tax rate.  Prior to that, the complex indexation method was used to ensure that only real capital gains were taxed.

Depending on how long assets are held and the rate of inflation, the previous means of levying capital gains could work out more generous than the current version.

But you still hear: the CGT was halved and the misleading use of the term ‘discount’.  No one in their right mind would think that taxing nominal capital gains at full marginal tax rates is sensible policy – although all the journalists at the Guardian and some at the AFR would.

What is the indexation method?

Under the indexation method you increase each amount included in an element of the cost base (other than those in the third element, costs of owning the asset) by an indexation factor.

The indexation factor is worked out using the consumer price index (CPI).

If the CGT event happened on or after 11.45am (by legal time in the ACT) on 21 September 1999, you can only index the elements of your cost base up to 30 September 1999. You use this formula:

Indexation factor = CPI for quarter ending 30 September 1999
CPI for quarter in which expenditure was incurred

Note: The CPI for the quarter ending 30 September 1999 is 68.7.

If the CGT event happened before 11.45am (by legal time in the ACT) on 21 September 1999, you use this formula:

Indexation factor = CPI for quarter when CGT event happened
CPI for quarter in which expenditure was incurred
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35 Responses to Fake News from the Guardian

  1. closeapproximation

    In ultra-low interest rate environment like we have now, flat 50% would generally work out favourably to the investor compared with indexation.

    Presumably the flat CGT rate significantly reduced the cost of implementation and that was its primary rationale?

  2. H B Bear

    Any tax rate less than 100% is a loss to revenue. Just ask Treasury.

  3. Snoopy

    That’s not #FakeNews. That’s a lie.

  4. Pyrmonter

    So, the Guardian and a bunch of “financial” journos know nothing of the history of tax policy: this is hardly new; remember many of their forebears were ardent protectionists.

    More importantly: what is the rationale for the Howard/Costello changes? The old calculations were a bit tiresome, but in a world of cheap bookkeeping, cloud storage and the like, what basis is there for retaining an essentially arbitrary compromise (especially arbitrary when you consider that the “discounts” vary depending on the legal form of the taxpayer)?

  5. Judith Sloan

    Mind you, capital gains tax in Australia is high by international standards.

  6. Bruce of Newcastle

    The Grauniad isn’t very good with money.

    Heavy Losses At The Guardian (two weeks ago)

    The Guardian has warned staff to expect further heavy losses, as the newspaper said it expects to burn through another £90m in cash this year.

    It has recorded negative cash flow of £60m so far in the current financial year and is on track for another £30m by April, executives told a meeting at its King’s Cross headquarters.

    The outflow so far is roughly equivalent to last year, when Guardian Media Group, the publisher of the Guardian and the Observer, went on to report a loss before tax and exceptional items of £68.7m. After tax and one-off charges, the company’s losses topped £200m.

    They must be really jealous of the BBC, especially their mandatory eyeball tax.

  7. mh

    But you still hear: the CGT was halved

    It is indeed incorrect to say CGT was halved, as the method of calculation changed. It would only be a correct statement if the method of calculation was the same when the 50 percent discount was introduced. Even then, it is the assesable income that is halved.

    …and the misleading use of the term ‘discount’

    That one you will have to take up with the ATO.

  8. PeteD

    Unfortunately, the word discount is in the legislation.

    Two reasonable changes they could do:

    1. Reduce the “discount factor” for assets held for less than 10 years, and possibly increase the discount for assets held more than 20 years. At the same time, clean up some of the other random loopholes.
    2. Given many people only pay the top marginal tax rate when they have a CGT event, they could compensate for any adjustment by knocking a few percent of the top two marginal rates as well.

    The best way to demonstrate why this makes sense is to imagine an average income earner who bought something in 1985, and then sold it now. Halving the notional gain is neither fair nor equitable for them.

    At the moment, one big impediment for supply of new houses, is the difficulty a long term investor would have to pay the CGT on any property sale, to then re-enter the market.

  9. Rabz

    Given many people only pay the top marginal tax rate when they have a CGT event, they could compensate for any adjustment by knocking a few percent off the top two marginal rates as well

    Heresy.

  10. Pyrmonter

    @ Rabz – the pre Howard/Costello system had an averaging system – 5 years I think – to moderate the effect of marginal rates. Judith is right, we do now tax capital gains heavily, but I’ve never heard a convincing explanation for the changes: we’re almost bound now to end up taxing the “inflation compensation” component of nominal gains when Labor next rort monetary policy.

  11. nfw

    Using the expression “fake news from The Guardian” is far too much unnecessary tautology.

  12. Andrew

    Since CGT is mostly levied on investment property (since Aussies don’t invest in productive assets), it would have to grow at more than twice CPI in perpetuity for the new method to even be more generous.

    The ASX200 has roughly doubled since 1999. It was 3100 at the end of Q1 2000 and its 5800 now. That’s about 3.75% p.a. since 2000 when inflation has averaged high 2’s. So the new basis was a tax INCREASE for listed shares.

    Yep, seems like FakeNews.

    Another thing the Grauniad is upset about is House Joint Resolution 41, which overturned what was LOLingly described as an “anti-corruption” measures (but was in fact designed to make it impossible for US companies to operate on a level playing field). How that ridiculous reg written under the Kenyan, which has nothing at all to do with corruption but is clearly another bomb through at the extractive industries, was ever going to help with corruption is beyond me.

    The loony left was pushing the view that HJR41 actually places US companies at a DISADVANTAGE by not forcing them to disclose to the world, including their competitors, everything they do. In which case the ENTIRE industry, plus rEXX tillersON, spent 8 months campaigning against their own self-interests and demanded a major disadvantage relative to their peers.

  13. Rabz

    Pyrmonter, I have a massive CGT bill due next month. The comment above was a sly dig at my accountant, who performed some sterling work in minimising it.

    It’s not my favourite topic at the moment.

  14. Waz

    Actually it was Keating who brought in CGT on 20 Sep 1985; before that there was no tax on cap gains. The Keating tax was only a tax on real gains and there was much discussion at the time about taxing inflation and hence the CPI indexation. Costello amended it in 1999 and you still have a choice of method to apply to assets held before that time (basically a free option to pay the least tax) and . For assets acquired before 20 Sept 1985 (and there a still a lot of them out there in the form of investment properties and even some shares), no CGT tax applies at all; they are permanently tax free assets.

  15. Snoopy

    Rabz, I wish that your next CGT bill is one million dollars.

    🙂

  16. Habib

    Should’ve be repealed. Nostalgia for the Howard years is misplaced, they only appear adequate due to the litany of malfeasance, stupidity, dissipation and incompetence that followed, and continues to do so.

  17. eb

    CGT is also a bit of a death duty as well.
    If you inherit assets acquired post 20-9-85, then you don’t pay tax when you get them, but you have to pay tax on all the gain from purchase date; not just for the gain while you held them.
    Also if the assets were bought before 20-9-85, then they become post that date when you inherit.

  18. Dr Fred Lenin

    The guardian telling lies? Oo woulda thunk they was tellin the troot ? Never told the truth in their miserable lives , English izvestia /oravda an organ of the aparat ,stffed by aparatchiki .

  19. Zulu Kilo Two Alpha

    Actually it was Keating who brought in CGT on 20 Sep 1985; before that there was no tax on cap gains

    The Right Honourable Robert (“Blubbering Bob’) stood on the steps of Parliament House, and rasped, prior to that “I’ll say it, and I’ll say it again for the benefit of the opposition, they’ll never be a capital gains tax in this country.” Lying dos.

  20. Waz

    I’ll put out there. I think death duties are actually OK if accompanied pro-rata by cuts to exiting income and capital taxes. Taxes on death;

    1. Allow additional wealth creation during your life.
    2. Encourage deployment of capital into productive areas rather than Government re-current expenditure.
    3. Encourage effort by reducing your windfall from mum and dad’s accumulated wealth which had nothing to do with you.
    4. It’s an efficient tax and VERY HARD to avoid…..we’d all pay at some point.
    5. It needs significant regulation to prevent or reclaim gifting within a reasonable period of end of life and needs to capture trusts.
    In fact, I think Government should be able to reclaim significant retirement benefits (but not health benefits) from one’s estate in a sort of administered reverse mortgage.

  21. notafan

    Eb. I am not sure that is correct.

    Asset has the base value of date of acquisition ie inheritance iirc.

  22. Habib

    It’s an efficient tax and VERY HARD to avoid…..we’d all pay at some point.

    Except of course for the bumbags who make most use of every facet of government, and who don’t accumulate a single asset in their lengthy but pointless existence. Only tax they ever pay is the admittedly exorbitant excise on booze and bungers, of which they are usually avid consumers, but of course government compensates them for their shortfall.

  23. Tim Neilson

    Waz
    #2298789, posted on February 16, 2017 at 7:47 pm
    Something to be said for that, but it crucifies family owned enterprises (because the inheritor has to load the business up with useless debt to pay the duties) unless there are exemptions – and exemptions equals avoidance and distortions in the market.

  24. eb

    Not sure what you mean, Nota.
    If Deceased acquired pre-CGT then your acquisition date is DOD. That means taxable for you.
    If Deceased acquired post-CGT then your acquisition date is their’s. Taxable for you on disposal, on gain from Decd’s acquisition date.

  25. Waz

    but it crucifies family owned enterprises (because the inheritor has to load the business up with useless debt to pay the duties) unless there are exemptions – and exemptions equals avoidance and distortions in the market.

    Point taken, but wealth is wealth. Why should kids get a family business built by their parents for nix? Death duties would be payable on the NTA of the business. Whatever treatment is applicable there should definitely be no alternative treatment for farmers; they get enough from the public teat as it is.

  26. OneWorldGovernment

    Waz
    #2298961, posted on February 16, 2017 at 10:26 pm

    but it crucifies family owned enterprises (because the inheritor has to load the business up with useless debt to pay the duties) unless there are exemptions – and exemptions equals avoidance and distortions in the market.

    Point taken, but wealth is wealth. Why should kids get a family business built by their parents for nix? Death duties would be payable on the NTA of the business. Whatever treatment is applicable there should definitely be no alternative treatment for farmers; they get enough from the public teat as it is.

    All your wealth belongs to us.

    How fu*ked is that Waz?

    There is no justification for Death Duties, Capital Gains Tax, Stamp Duty, Payroll Tax, Excise Duties, RET, Rates, WET, whatever.

    America is currently facing up to their ‘Deep State’ controllers.

    Isn’t it about time we faced up to our ‘Seep State’ controllers who create taxes and duties to keep themselves in jobs and profits.

    Look at what Sinclair reported of DeMetriou and the Packer conclave the other day FFS.

  27. Leeches

    Why should kids get a family business built by their parents for nix?

    … why should the Government get a slice of it? Bludgers.

  28. Waz

    OneWorldGovernment, you must have missed the start of my comments. I said nothing along the lines of that. I only brought up death taxes as a part substitute for existing income and capital taxes. I am all for less taxation but civil society requires some level of taxation to provide for security of the populace, law and order, a level of safety net and reasonable regulation. My point is death taxes are more efficient than all the other taxes you mention (and income tax). If you disagree provide some rational argument rather than abuse.

  29. Rococo Liberal

    If Deceased acquired pre-CGT then your acquisition date is DOD. That means taxable for you.
    If Deceased acquired post-CGT then your acquisition date is their’s. Taxable for you on disposal, on gain from Decd’s acquisition date.

    If the asset is the deceased’d main residence and you sell it within 2 years it will be exempt from CGT. If you move in and treat as your main residence, then it will be exempt whenever you sell it.

  30. Peted

    But if a couple happened to own a pre-CGT investment together, at some point down the track after the death of a spouse, there could quite easily be contested valuations…

    Even though the underlying ownership has not changed since before CGT.

  31. john constantine

    The only way for their left to pay off the voteherds that will hand Big Australia to Stalin is to simply take the legacy wealth of obsolete and deplorable Australia.

    All your super and houses and farms belong to us.

  32. .

    Point taken, but wealth is wealth. Why should kids get a family business built by their parents for nix?

    Why not tax all gifts to children at 100%?

  33. john constantine

    Their left Know that everybody should just work for the government, and use their wealth and contacts to get their kids good government jobs.

    Everybody that works for their government and has kids that work for government departments should pay a Simony Tax.

    [government is their lefts religion afterall.]

  34. OneWorldGovernment

    Waz
    #2299163, posted on February 17, 2017 at 8:51 am

    OneWorldGovernment, you must have missed the start of my comments. I said nothing along the lines of that. I only brought up death taxes as a part substitute for existing income and capital taxes. I am all for less taxation but civil society requires some level of taxation to provide for security of the populace, law and order, a level of safety net and reasonable regulation. My point is death taxes are more efficient than all the other taxes you mention (and income tax). If you disagree provide some rational argument rather than abuse.

    Very cute Waz.

    What was my abuse of you?

    But with your comment in the quote above I would rip your throat out.

    If you think that death taxes are the way to go then why would anyone accumulate assets?

    Asking for a friend.

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