Calls for extra round of consultation on CGT, negative gearing changes

“It is not possible for taxpayers and advisers to identify every circumstance, interaction and unintended consequence within a matter of weeks,” the submission said.

“Industry and advisers will require time to form settled views on the interaction between the primary legislation, the separate tranches of amendments, the proposed legislative instruments and their interaction on the structures used across different parts of the property industry.”

Furthermore, the council said that when the legislation comes into effect and is applied by taxpayers to real-world circumstances, it expects more unintended consequences and issues to arise.

As such, it asked for legislation to include safeguards that recognise the limits of the current process.

This includes:

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  Treasury releasing revised drafting and explanatory material and providing another round of targeted consultation after considering submissions on the exposure drafts.

• The legislation providing approximately confined powers for the minister and the Commission of Taxation to address unintended consequences and provide targeted relief.

• The legislation requiring a statutory review after two years of operation.

“A further round of consultation should allow industry and advisers to test Treasury’s revised approach as a complete package,” the submission said.

“One short round of consultation is not sufficient for reforms of this scale, complexity and consequence for Australia’s housing supply.”

The Property Council of Australia also said that the draft legislation contains flaws that could deter investment in the housing types central to the national cabinet target of 1.2 million new homes by 2029.

Property Council of Australia CEO Mike Zorbas said: “Treasury should implement industry’s feedback and consult again, fix the blind spots, and make sure every part of the housing continuum is backed in, not taxed out.”

Concerns raised over CGT apportioning method

The Property Council of Australia raised several concerns in its submission over the proposed CGT apportionment method in the second tranche of the legislation.

First, it said that while the rationale for the methodology is to provide a simple, practical, and cost-effective mechanism for determining the pre and post-1 July 2027 components of a capital gain without forcing taxpayers to pay for compliance costs associated with a formal valuation, the method is in fact complex and uncertain.

“The use of a compounded daily growth rate which takes into account only the first element of cost base may materially misstate the allocation of gains between the pre-1 July 2027 and post-1 July 2027 periods,” the submission said.

“Importantly, because the apportionment method may produce outcomes that are either significantly favourable or significantly unfavourable compared to a market valuation (although in a property development context we would expect the majority of the outcomes to be significantly unfavourable) prudent taxpayers and their advisers will, in many cases, still need to obtain a valuation in order to assess which approach produces the most appropriate outcome.”

This would mean taxpayers may need to undertake both calculations before making an informed decision, defeating the purpose of providing an alternative apportionment method, the council said.

Moreover, the valuation profession may not have the capacity to carry out the rising volume of work that could arise as taxpayers seek to establish the 1 July 2027 value for affected assets, it pointed out.

Days-held apportionment method recommended

The Property Council of Australia recommended replacing the proposed allocation methodology with a “simple” days-held apportionment approach. It said that this would be straightforward to apply, easy for taxpayers to understand, and provide a transparent basis for allocating gains between the pre and post-1 July 2027 periods.

“Alternatively, taxpayers should be permitted to apply a compounded growth rate methodology that considers all elements of the cost base, rather than solely the first element of cost base,” the submission said.

“This is particularly crucial for property development where significant capital expenditure is incurred (and value created) after the acquisition of the initial asset (e.g. land). For simplicity reasons, Treasury could retain the existing first-element cost base methodology as an optional safe harbour method. However, taxpayers should also have access to an alternative methodology that incorporates all elements of the cost base.”

The council reiterated that any alternative allocation method or regime should be able to produce outcomes that taxpayers can rely upon with confidence without needing to undertake a formal valuation to compare outcomes.

“Where this is not the case, the fundamental policy objective of providing an alternative allocation method has not been met,” it said.

Zorbas said confusion in tax law could result in delayed projects, stalled financing, and new homes that never reach the market.

“Australia is already miles behind on housing supply. If the government gets these settings wrong, the result is less investment in supply and more pressure on buyers and renters,” he said.

“The government must give itself targeted powers to fix the inevitable unintended consequences quickly, not a system where every drafting mistake requires another round of legislation while projects sit on ice.”