Labor to expedite legislative fix for widow’s tax to secure NDIS reforms

In a letter to the Prime Minister earlier this week, Taylor stated that the Coalition would not support the passage of the NDIS changes until Labor agrees to pass the Coalition’s private senator’s bill to repeal the widow tax that applies under Labor’s CGT and negative gearing reforms, as reported by The Australian.

The bill to remove the widows and spouses tax would provide protection for individuals whose assets have grandfathered access to negative gearing or the 50 per cent capital gains tax (CGT) discount under the provisions in the first tranche of CGT legislation, but would otherwise lose that grandfathering if the asset changed hands from multiple ownership to single ownership through divorce proceedings, relationship breakdown, or the death of a joint owner.

Concerns around how the tax changes to CGT and negative gearing would affect situations where there is shared ownership of an asset were previously raised by Senator David Pocock when the first tranche of changes were passed by Parliament.

Labor previously gave the senator assurances that it would provide grandfathered CGT and negative gearing concessions in the case of death or divorce and would do so in the next tranche of CGT reforms.

Speaking in the conference on Tuesday, Chalmers said Labor previously made it clear that it would be addressing some of the issues raised with CGT and negative gearing reforms. Labor released draft legislation to rectify some of these issues earlier this month, with consultation due to close on 21 August.

“If the Opposition’s main ask is that we pass the government’s legislation quicker, then obviously I’m up for that discussion, and from a personal point of view my objective, my job is to continue to pass these tranches of legislation to give effect to a tax reform package which is all about making it fairer for first home buyers and cutting taxes for workers and making the system fairer across the board,” Chalmers said.

“And so if their ask is that we pass the government’s draft legislation sooner rather than later, then obviously I’m up for that discussion.”

The Tranche 2 CGT legislation also aims to address a number of other complex issues such as providing exemptions for capital gains distributed to beneficiaries via genuine testamentary trusts, deceased estates, and special disability trusts from the minimum tax on capital gains, consistent with exemptions from the minimum tax on discretionary trusts.

The draft Tranche 2 reforms also contain amendments to preserve existing eligibility for negative gearing or treatment as a new build in certain circumstances, including for residential dwellings acquired from a spouse as a result of inheritance or relationship breakdown.