This book examines key aspects of one of the more controversial questions in tax policy: what is the appropriate way to tax capital gains? The focus of the book is the capital gains tax (CGT) rate and rate preferences. The research is by way of a review of the relevant tax literature on capital gains, followed by qualitative and quantitative studies and recommendations and conclusions. The literature review identifies an absence of empirical evidence on how Australian personal taxpayers respond to CGT rate changes. This significant gap in the knowledge is the primary motivation for this book. The qualitative study presents findings from in-depth interviews conducted with 24 CGT experts in Australia, Canada and the United States on issues related to the taxation of capital gains. In particular, it explores the role of CGT preferences. The interview data are compared with relevant tax literature as well as current practices in the three jurisdictions in taxing capital gains. The study establishes that most interviewees do not support CGT rate preferences. Armed with this background, the quantitative study uses regression analysis to estimate the capital gains realisations response in Australia, with the tax rate change of interest being the enactment of the 50% CGT discount in 1999 for personal taxpayers. The elasticity point estimates from the quantitative study support the primary hypothesis that the 50% CGT discount has caused a decrease in CGT revenue. This raises questions about the central rationale for the introduction of the CGT discount-the forecast increase in CGT revenue. The qualitative and quantitative results are drawn on to recommend a tax policy reform to improve the operation of the CGT regime in Australia: specifically, reinstating taxation of personal capital gains at marginal rates and introducing an annual exempt amount for net capital gains.