The Australian Government is working on a “smart” tax policy that will include changes to how it calculates the amount of money a person owes, and could eventually see people being taxed for their “savings”.
The Government is also working on making the capital gains tax rate lower, to give more incentives to saving.
What’s the new plan?
The new plan will be announced on July 1.
Under the current tax regime, a person who has more than $500,000 of assets is taxed at 10 per cent of their income.
But under the “Smart Tax” scheme, those with assets of $50,000 or less will be taxed at 2 per cent.
But the Government says the plan will make the capital gain tax rate 0.5 per cent, down from 2 per and will give “an incentive to save”.
The Government is looking to see how people will feel about the change, and whether people will be willing to pay more tax.
“The key is to get people to use the savings that they’ve made, and if they think they’re going to pay less tax than they would have paid if they’d done the same amount of work, then that’s going to have an impact,” Finance Minister Kelly O’Dwyer told the ABC’s 7.30 program.
Ms O’Doherty said the change would encourage people to save, but the Government was also looking at making changes to the capital income tax rate, which currently sits at 10.5 cents.
“What we’re trying to do is try and get some more certainty into people’s minds that what they’re doing is contributing to the economy, so that they can actually do more of that,” she said.
There are still a lot of people who have savings that are not paying tax.
For them, the biggest question is whether the capital-gain tax rate will be changed or not.
The tax gap has risen to about $100 billion a year, and it’s projected to grow to about another $300 billion by the end of the decade.
What can people expect?
Ms O’Donoghue said the Government would be introducing a “new” tax system when it announced the changes.
The new system will see the capital value of a property or business tax be taxed as a percentage of the value, rather than the amount the property or businesses are worth.
However, the changes are not expected to reduce the amount people have to pay in tax, because it would be based on their income rather than their capital gains.
She said it would also be difficult to know exactly how much people will pay because there would be no way to monitor the change over time.
What else is new?
There will also be changes to what is known as “capital gains”, where a person can “redeem” the difference between their taxable income and the amount they paid in capital gains taxes.
Mr O’Donnell said the “new tax system” was “designed to provide certainty for people” and it would give them “the certainty to save and reinvest” rather than relying on “the government to kick them back into the tax system”.
“We’ve had a great deal of feedback on the tax changes, so we’re going back to our stakeholders to hear their views, and the feedback is very positive,” he said.
What is the “smart tax” scheme?
The scheme will be based around three elements: 1.
Capital gains tax rates will be reduced.
Capital gain deductions will be allowed.
Capital losses will be capped.
Capital gains are taxable income earned from the sale of assets.
Property owners can be exempt from capital gains on the value of their homes, which is currently $600,000.
Incentives to save will be introduced.
People will be able to reduce their capital gain deductions for a period of three years by transferring an amount from a savings account into an asset-based account.
Once a person has reduced their deductions, they will be required to repay their capital losses, and pay back their capital loss deduction tax.
This will then trigger a tax refund to the Government.
Where can I find out more?
A number of information pages are available to answer any questions you may have about the new system.