Labor is making another change to its controversial tax legislation as backlash over the laws has forced the government to back down again on its budget reforms.
Treasurer Jim Chalmers will axe elements of the government’s negative gearing and capital gains tax changes, which would have impacted divorcees and widows.
Dubbed the “widows tax”, the measure would have scrapped grandfathering exemptions for those property tax changes in the case of a divorce or a death.
This was expected to impact about 680,000 properties owned before Mr Chalmers’ budget address.
Finance Minister Katy Gallagher confirmed Labor was scrapping the “widows tax”.
It came after independent Senator David Pocock said he would seek to amend the legislation.
“We have made clear from the get-go … that we were aware that there would be tranches of legislation … that would require us to work through some particular and specific interactions of tax law in subsequent legislation,” Ms Gallagher told the Senate.
“We were aware of some of the issues that Senator Pocock is raising around grandfathering and shared ownership.
“And we were working through them in the usual way, and we intend to address these, the arrangements for jointly owned assets in circumstances like inheritance, or divorce in subsequent legislation.”
This marks the latest backdown in Labor’s plans to scrap the 50 per cent CGT discount and restrict negative gearing to new builds and properties purchased before budget night.
Labor has carved out businesses earning less than $10 million annually from its CGT change.
To get the legislation through, the Albanese government struck a deal with the Greens to ban borrowing in self-managed super funds for purchasing investment properties.
It also wound back provisions that would have given the Treasurer discretionary powers over the taxes after they had been legislated.
The government was also forced to exempt testamentary trusts from its plans to impose a 30 per cent tax on discretionary trusts.
The “widows tax” came to light after Treasury officials confirmed during Senate Estimates that in the event of a transfer of an interest the “new owner … would no longer benefit from the exemption”.
Mr Pocock said this would mean some Australians would lose “legitimate access” to grandfathered exemptions and vowed to move an amendment ensuring they remain in place.
“(The amendment) allows the transferee to choose to apply the same concession to a later capital gain that the transferee would have been entitled to apply immediately before the transfer,” he said.
The senator also attacked the government’s messaging on the tax changes which he described as “disappointing”.
“They’re saying that this is something that they knew about all along, and we’re going to address, and yet just this morning we had ministers on radio saying that it wasn’t an issue, it was just how the system worked, and there was nothing to see here,” Mr Pocock said.
“I appreciate the minister’s commitment on this but some of it’s hard to comprehend.
“You really scramble to get stuff drafted and talked about … as a crossbench, we agree with the intent of the bill, we’re putting forward amendments in good faith, and then we’re somehow accused of not engaging.”
The government’s grandfathering arrangements mean Australians who purchased a property before budget night or who build a new home can negatively gear.
Capital gains on property purchased before budget night fall under the old 50 per cent discount model until July 1, 2027.
After this date, the new inflation-adjusted model will apply.