CA ANZ laments rushed CGT reform consultation

CA ANZ has lodged a submission on the draft legislation and explanatory materials for the second tranche of CGT and negative gearing reforms.

While backing the government’s commitment to tax reform, CA ANZ raised concerns about the tight implementation framework given the significant work required to finalise legislation, issue ATO guidance, update systems, and develop compliance tools before the proposed 1 July 2027 commencement date.

The submission said that passing legislation is only the first step in implementation, as the ATO will need the stipulated law before it can issue guidance, update forms, and develop tools and calculators to support compliance.

Moreover, tax practitioners require both the finalised legislation and the ATO guidance before they can provide useful advice to taxpayers. Given the complexity of these reforms, CA ANZ said, more adequate lead time is crucial.

CA ANZ singled out the funds management industry as one that would face significant challenges with implementing systems to comply with the CGT reforms by 1 July 2027, as the changes will impact transaction processing, capital gains and distribution calculations, withholding obligations and investor reporting from commencement, not just year-end reporting.

“The rushed consultation process, staged release of key legislative interactions and evolving policy settings are likely to require further legislative amendments as practitioners apply the new rules in practice,” the submission said.

Key CGT, apportionment method concerns raised

The submission raised concerns around several complex tax reforms outlined in the second tranche of the draft legislation that still need addressing, including mixed resident status, CGT rollovers, and deceased estates.

It also flagged issues with the CGT apportionment method in the draft legislative instrument, Income Tax Assessment (Method for Apportioning Capital Gains and Capital Losses) Determination 2026. It said that the proposed formula could disadvantage taxpayers who cannot afford professional valuations by allocating more of their gain to the post-1 July 2027 period.

The nine-step apportionment process assumes the asset's value has a compounding growth rate, the submission said. This methodology assumes gains are made at a constant rate over the ownership period and typically allocates a higher proportion of the total gain to the post-1 July 2027 period. This means more of the capital gain would be allocated to indexation rather than the 50 per cent discount, it said.

“In practice, taxpayers who are unable or unwilling to incur the cost of obtaining a professional valuation at 30 June 2027 will be required to rely on the statutory apportionment methodology,” the submission read.

“CA ANZ is concerned that those taxpayers who are least able to afford to obtain a market valuation may be disadvantaged due to their adoption of this methodology. Any assumed growth of an asset will not reflect economic reality.

“The value of many assets, including residential property, fluctuates over time and is often characterised by periods of strong growth, stagnation and decline. Any assumed growth rate is therefore arbitrary and may produce outcomes that differ materially from actual changes in value.”

Straight-line method suggested

To address these issues, and because the measures could affect large numbers of individual taxpayers, the body proposed a “straight-line” apportionment methodology. It said this would strike a better balance between accuracy and administrability while reducing the risk of lower-cost taxpayers being disadvantaged relative to those who can afford professional valuations.

CA ANZ also said this method is simple, transparent, and easier for taxpayers to understand, and can be applied without specialist advice or complex calculations.

In its submission, CA ANZ found gaps in the formulas outlined in the draft legislation to determine the apportionment of capital gains and losses, including that certain steps in the calculation take into account only the first element of a cost base (specifically its purchase price).

It pointed to issues that could arise for assets such as internally generated goodwill and assets with significant capital improvements. This is especially the case where capital improvements occur before 1 July 2027.

In these cases, a compound growth-based apportionment methodology could allocate a larger share of the gain attributable to those pre-1 July 2027 improvements to the post-1 July 2027 period, CA ANZ said.

“This outcome is inequitable because it fails to recognise that a portion of the eventual gain may arise from expenditure incurred before 1 July 2027 rather than from appreciation occurring after that date,” it said.

Safe harbour to slash red tape

CA ANZ also proposed giving a safe harbour for capital proceeds received by individual taxpayers with a small amount of assets worth less than around $5,000, provided this individual had total assets of no more than $100,000 in value at the time of disposal, excluding their home and superannuation. The capital gain from such proceeds could be assessed using the 50 per cent discount method.

It said this would cut red tape, complexity, and compliance costs for taxpayers who receive small amounts of capital proceeds.