Government refuses to rush through fix for ‘widow’s tax’ despite widespread pressure
The federal government has refused to bow in to pressure to rush through legislation to close its so-called “widow’s tax”, instead opening consultation on a draft bill that won’t be put before parliament until later in the year.
The move comes a day after a domestic violence survivor became the first person publicly known to fall victim to the loophole – an oversight that became law in June as part of the government’s wider tax overhaul that formed the centrepiece of this year’s federal budget.
Treasurer Jim Chalmers has promised to remove the “widow’s tax”. It just won’t happen this month. Alex Ellinghausen
Independent Senator David Pocock wrote to Treasurer Jim Chalmers after being approached by a woman divorcing her abusive partner and trying to settle on their investment property.
Because the investment property would lose its exemptions from the changes to negative gearing and capital gains tax, three different lenders have denied her pre-approval to refinance the property to solely own it.
“The person writing to me advises that the decision not to offer finance was not due to poor credit history, property value concerns, insufficient income or an inability to meet repayments,” Pocock wrote in a letter seen by nine.com.au.
“The issue raised by lenders has been the application of negative gearing reforms and the way they are now being factored into lending assessments for loan serviceability.”
Pocock called on Chalmers to urgently prepare and bring forward new legislation to fix the oversight in the next parliamentary sitting fortnight, which starts on Monday, August 11.
“This cannot wait for a further tranche of broader legislation, it must be dealt with when the parliament returns,” he wrote.
“I will be seeking support from the Greens and the Coalition to deal with these issues as a matter of urgency.”
In a rare moment of alliance, One Nation leader Pauline Hanson backed Pocock’s call.
The Coalition has also previously called for Labor to scrap the widow’s tax.
Senator David Pocock had called on the treasurer to introduce urgent changes in the next sitting fortnight. Alex Ellinghausen
However, in a statement released on Tuesday evening, the treasurer confirmed consultation on the next tranche of tax reform laws, including changes to the widow’s tax, will run until August 21 – the day after the sitting fortnight ends.
The widow’s tax affects joint owners of investment properties that are exempt or grandfathered from the changes to negative gearing and the capital gains tax.
When the property is fully transferred to one of the co-owners in the event of death or a relationship ending, including when domestic violence is involved, it is considered an ownership change and therefore loses its generous tax exemptions.
Pocock wrote that courts and financial leaders appear to have changed their behaviours due to the first tranche of legislation passing parliament in June.
The widow’s tax was an oversight in the federal budget’s tax reform – the most significant change to investment property concessions in decades. Luis Enrique Ascui
Chalmers and Finance Minister Katy Gallagher in June promised a second tranche of legislation to address some of the public concerns with the government’s budget tax changes.
On Tuesday evening, the treasurer released drafts of that legislation for public consultation.
On top of the widow’s tax oversight, the proposed laws also cover the treatment of attribution managed investment trusts and testamentary trusts, and include definitions of the types of housing exempt from the CGT and negative gearing changes.
“These reforms will help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply,” Chalmers said.
“The draft amendments build on the core legislation passed by the parliament in June, addressing a number of more complex issues and ensuring the changes appropriately apply to a range of specific taxpayer circumstances and structures.”
The government has not set a date for when the bills will be introduced to parliament following the consultation period, although the earliest it could be tabled is next month, during the ensuing sitting period that begins on September 7.
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