Treasurer Scott Morrison’s indications regarding a pre-tax house deposit scheme have prompted BDO to call for a revisit of The Australia’s Future Tax System Review commissioned by the Rudd government in 2008.
BDO tax partner Mark Molesworth said then secretary to the Treasury, Ken Henry’s suggestion of a 40 per cent discount on all passive income for individuals and trusts would reduce the current 50 per cent discount on capital gains by 10 per cent.
It would also spread the benefits of a discount across a wider spectrum of the population, reduce the benefit of negative gearing and increase the rate of franking credit wastage without amending the imputation system.
“The proposal from the Henry Review was that the 40 per cent discount applied to both income and deductions, just like the current discount effectively applies to both capital proceeds and cost base,” Mr Molesworth said.
“Therefore, negative gearing arrangements would only give 60 per cent of their current benefit, effectively placing a curb on the benefits from negative gearing.
“However, the government needs to approach this with caution as the 40 per cent discount was one of a number of connected policies that the review recommended be implemented. One of the others was the replacement of stamp duties with a broad based land tax.
“Revisiting the Henry Review recommendations would be a good place to start for any government that was really serious about reforming the tax system.”
