Government urged to consider de minimis threshold for CGT reforms: Pitcher Partners

Mid-sized firm Pitcher Partners has warned that certain provisions in the Capital Gains Tax and Negative Gearing – Tranche 2 Legislation (Draft Legislation) will add additional complexity to the CGT regime and has made recommendations for improving the changes.

In its submission, the firm Pitcher Partners expressed concerns about the complexity arising from the deemed sale and reacquisition framework outlined in the capital gains tax exposure drafts

The firm stressed that taxpayers should not be required to apply a deemed sale and reacquisition mechanism to existing assets, which the framework provides.

“[This] framework gives rise to a broad range of interaction issues with existing provisions of the tax law, many of which remain unresolved,” the submissions read.

Further, the firm recommended that the conditions in subsection 110-36A(2) be removed.

While the policy purpose of proposed section 110-36A is to reduce compliance costs, the firm said that this reduction would be “better achieved by allowing a trustee to voluntarily forgo indexation where the expected benefit does not justify the complexity of calculating, tracking and reporting indexed gains.”

“Allowing an unrestricted choice would reduce compliance costs for trustees, beneficiaries and the ATO, while ensuring taxpayers who wish to benefit from indexation remain able to do so,” it said.

In addition, the firm emphasised that the proposed CGT apportionment methodology is likely to lead to “increased compliance costs for taxpayers, increased demand on an already constrained valuation profession and a greater risk of disputes and litigation regarding the correct treatment of gains”.

It also recommended that Treasury consider introducing a “de minimis threshold to reduce compliance costs for taxpayers with relatively small gains on assets held before 1 July 2027.”

“In many cases, the cost of undertaking an apportionment calculation, obtaining supporting records or commissioning a valuation and undertaking indexation calculations may be disproportionate to the tax outcome at stake”

“Given the relatively small amounts involved, we do not expect a de minimis threshold of this nature to have a material impact on revenue collections, while the reduction in compliance costs would be substantial.”

The firm said that for assets acquired before 1 July 2027 and where the total capital gain on disposal does not exceed a certain threshold such as $10,000, the entire gain could be treated as eligible for the CGT discount without any requirement to undertake an apportionment calculation.

“For example, this could be achieved by deeming the value for such assets at 1 July 2027 as being the capital proceeds from the realisation event. This would provide a practical compliance concession for taxpayers while allowing the apportionment rules to remain focused on transactions where the revenue impact is more material,” the firm said.