26/10/1999 - 22:00

Capital gains tax poses quandary for mums and dads

26/10/1999 - 22:00

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Capital gains tax changes proposed under the Ralph review could be both a boon and a burden to mum-and-dad investors, according to the Australian Society of CPAs.

Capital gains tax poses quandary for mums and dads
Capital gains tax changes proposed under the Ralph review could be both a boon and a burden to mum-and-dad investors, according to the Australian Society of CPAs.

The changes include halving CGT paid by individuals and a one-third cut in CGT paid by super funds, but also the abolition of indexation and averaging. Under indexation, any capital gains generated by inflation were disregarded for CGT purposes.

Averaging enabled many tax payers to access a lower marginal rate of tax on their capital gains.

“The changes create important new issues for individual investors,” said Mike Gehde, Chairman of the ASCPA Financial Planning Centre of Excellence.

“The loss of averaging means that investors may need to consider, where possible, spreading disposal of their assets over several years so as not to incur the maximum CGT.

“The loss of indexation is a real concern if inflation takes off.

“For a DIY super fund, for instance, if inflation is one-third or less of your annual returns, you are better off under the Ralph proposal.

“If inflation is greater than one-third of your annual investment returns – if, for instance, your fund returns five per cent and inflation is three per cent or higher – then you are worse off than you would have been under the old system.

“This highlights the need to invest your DIY super properly for good returns, rather than treat it as an end-of-year tax issue.”

Mr Gehde said the onus would be on investors to monitor inflation more closely than in the past.

“Inflation-driven capital gains could now generate considerable tax for some investors, whereas in the past they were protected from this,” he said.

Mr Gehde warned investors not to make hasty decisions based on proposed legislation.

“The message is to tread warily and get professional financial planning and tax advice,” he said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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