This chapter deals with disposals of shares. Due to the derivative nature of shares, the tax on corporate income when derived can be duplicated when gains on the disposal of shares are taxed (economic double taxation). The stripping effect of dividends can remove the duplication. These themes inform various options for the taxation of share gains. A major issue here is how taxation of gains on the disposal of shares relates to the taxation of dividends (Chapter 2). There may be similar treatment, but this is not always possible depending on the type of dividend relief adopted. Other methods of integration are possible. Share disposals may cause a change of ownership of a corporation with consequences at the corporate level, particularly on a corporation’s tax attributes such as losses. Many countries restrict the use of corporate carry forward losses on a change of ownership. Defining a sufficient change highlights the artificiality of corporations. Other tax attributes are considered, including the tax value of assets, unrealised losses and the carry forward of credits. The chapter concludes with a comparison of the tax consequences on the sale of a corporate business either directly or indirectly through the sale of shares.

CGT was introduced by the Hawke Labor Government on 20 September 1985. Before this time, gains that were not of an income nature generally escaped tax unless they fell within a limited number of special statutory income provisions. One of these provisions was former s 26AAA ITAA36, which taxed profits made from selling property within 12 months of its purchase. However, taxpayers could easily avoid this provision by simply selling their property outside that period.

Many considered it unfair that income gains were taxed whereas capital gains generally escaped tax. For example, it was viewed as inequitable that taxpayers who earned salary and wages were taxed, but taxpayers who made capital gains from the realisation of their investments (eg shares and property) were not taxed. The CGT regime was designed to address this bias by bringing capital gains to account under a set of special statutory rules. These rules were originally contained in pt IIIA ITAA36 and were loosely modelled on the United Kingdom’s CGT legislation. In 1998, as part of the TLIP rewrite, pt IIIA was replaced with new provisions contained in pt 3-1 (ss 100-1 to 121-35) and pt 3-3 (ss 122-1 to 152-425) ITAA97.

With the chancellor apparently committed to a future balancing of the books, this chapter looks at what this means for future fiscal policy. It details the pressing future spending needs as we build back from the pandemic, address the much discussed ‘levelling up’ of our country and face up finally to the costs of an ageing population. It shows that there is a clear appetite for spending more on public investment and services, even if this means higher taxation. This has been apparent in survey data for decades, although receives precious little media coverage. While tax rises are not appropriate during the COVID-19 recovery phase, there nevertheless needs to be a conversation about how to support a future more active public sphere. Measures already announced to freeze public sector pay and increase income tax thresholds affect ordinary workers. The case is put that there should instead be a radically revised approach to wealth taxation, addressing anomalies in how capital gains and income are taxed and tapping into the enormous rise in household wealth during the neoliberal years, now widely seen as unfair. Newly published research shows this can raise money just as effectively as increases in income tax or VAT.