Tax Tips Alert: The Government's response to the Tax Working Group

On 17 April, the Prime Minister announced the Coalition Government’s response to the recommendations made by the Tax Working Group (TWG) in its final report on 21 February 2019.

Following negotiations with Coalition partners, political considerations have swayed the Government against adopting any of the recommendations on extending capital gains taxation. The Prime Minister has also confirmed that she will not be campaigning to introduce a capital gains tax in future elections. 

The TWG was formed in December 2017 to consider the fairness, balance, and structure of the tax system. It produced 99 recommendations, with much of the public interest focussing on its recommendations regarding the extension of capital gains taxation. A majority of the TWG favoured a full extension of capital gains taxation, involving a realisation-based tax that is applied to capital gains on a broad range of assets, at full marginal income tax rates. A minority of the TWG favoured a similar tax, but on a more narrow range of assets (residential property).

In the absence of pursuing the introduction of a capital gains tax, the Government will be pursuing other ways to improve fairness including tightening the land speculation rules and land banking. This will be through a mix of both tax and non-tax measures, such as a Productivity Commission review of vacant land taxes as part of its inquiry into local government funding and financing. 

The Government also announced that it will not be introducing environmental taxes such as water taxes or a fertiliser tax, noting work already underway by other agencies. 

However, the Government has endorsed a number of the TWG’s recommendations as high priority work programme items. This includes reintroducing building depreciation for seismic strengthening, a review of loss-trading and the loss continuity rules, and further measures to improve tax collection and encourage compliance. The resolution of these issues should have a positive impact for businesses.  

A refreshed tax policy work programme reflecting these priorities will be released mid-year.

Please get in touch with your usual PwC adviser if you'd like to talk about these developments.

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