Abstract

This study aims to analyze the problems of the current taxation criteria in South Korea's capital gains tax system, which determines tax exemptions and surcharges based on the aggregate number of houses owned by a household, and to propose improvement measures. The current Income Tax Act uses the 'household' rather than the individual taxpayer as the unit of taxation, aggregating the number of houses owned by all household members to determine eligibility for the one-household-one-home tax exemption and surcharges for multi-home owners. This study systematically identifies the issues of the current system across four dimensions: constitutional and civil law perspectives, tax administrative efficiency, tax equity with foreigners, and comparative legal analysis. From a legal standpoint, household-based aggregate taxation directly conflicts with the separate property system for spouses under the Civil Act. The Constitutional Court has ruled in three separate cases—regarding the aggregation of asset income, the Comprehensive Real Estate Holding Tax, and the Capital Gains Tax—that household-based aggregate taxation violates the principle of protecting marriage guaranteed by Article 36, Paragraph 1 of the Constitution. Furthermore, the current system structurally embeds a 'marriage penalty,' where a man and a woman each owning one home become two-home owners upon marriage, which directly contradicts policies intended to encourage marriage. In terms of administrative efficiency, excessive administrative resources are wasted as tax authorities must extensively investigate credit card usage, public transport records, and mobile base station data to verify household composition and actual residency. Additionally, the structure that makes it virtually impossible to apply household-based aggregate taxation to foreigners compared to domestic citizens violates the principle of tax equality. A comparative legal review reveals that among five major countries—the UK, the US, Germany, France, and Japan—South Korea is the only nation that imposes tax penalties based on the aggregate number of houses per household. Consequently, this study proposes amending Article 89, Paragraph 1, Subparagraph 3 of the Income Tax Act to shift the unit of tax exemption from the 'household' to the 'resident (individual),' transitioning the exemption criteria to the taxpayer's 'primary residence,' while suggesting alternative measures for imposing surcharges on non-primary residential properties.

Keywords

• Capital Gains Tax
• Household-based Aggregate Taxation
• Marriage Penalty
• Surcharge for Multi-home Owners
• Primary Residence

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