House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Removal of CGT averaging

This Bill amends the income tax law so that averaging of CGT no longer applies.

Date of Effect: The amendments apply to CGT events (such as the disposal of an asset) occurring after 11.45 am by legal time in the Australian Capital Territory, on 21 September 1999.

Proposal announced: The proposal was announced in Treasurer's Press Release No. 58 of 21 September 1999 (in particular, refer to Attachment D of that Press Release).

Financial impact: The financial impact of this measure is part of an overall estimate undertaken for this measure and the following measures:

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limiting indexation of cost bases of CGT assets; and

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CGT concessions for individuals and other entities.

The provisions relating to these measures are included in the Integrity and Other Measures Bill.

The overall financial impact of these measures is set out in the following table:

Compliance cost impact: This measure is expected to reduce compliance costs, as the removal of averaging will simplify the calculation of tax liabilities arising under the CGT regime.

Summary of Regulation Impact Statement

Regulation Impact on Business

Impact: The measure in this Bill is part of the Government's broad ranging reforms which will give Australia a New Business Tax System. These reforms are based on the Recommendations of the Review that the Government established to consider reforms to Australia's business tax system.

The New Business Tax System is designed to provide Australia with an internationally competitive business tax system that will create the environment for achieving higher economic growth, more jobs and improved savings, as well as providing a sustainable revenue base so the Government can continue to deliver services for the community.

CGT reforms, including the removal of averaging, are a critical component of the New Business Tax System. These reforms will remove impediments to efficient asset management, improve capital mobility, reduce complexity and compliance costs and make Australia's CGT regime internationally competitive.

Main points:

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The potential compliance, administrative and economic impacts of the measure contained in this Bill have been carefully considered, by both the Review and the business sector. The Review focused on the economy as a whole and concluded that there would be net gains to business, Government and the community generally from business tax reform.

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Removing averaging will impact on individuals and trustees with CGT assets.

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The removal of averaging part of the way through a financial year may create some transitional compliance costs. However, this will be more than offset by the overall CGT reforms, which will reduce compliance costs and simplify the CGT provisions.

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Administration costs are not expected to significantly increase as a result of the implementation of the measure in this Bill.