Reform overdue for family home CGT exemption

I refer to Ray N's comment of 12 February. The Kohler article to which you referred, published by the ABC, does mention CGT, when he said "It's my view John Howard did more to make housing unaffordable through reforms like cutting capital gains tax in half." Kohler doesn't expand on this but I don't think that tax is the proposed one on sale of the family home, but rather the tax on any thing, including property, bought and sold as an investment, when there has been a capital gain. Kohler's stated aim was to examine increasing supply and his conclusion was "To solve housing affordability, we need to not just meet demand but surpass it."
P.S. There may be a case for some CGT on the family home in the case of the occupant who lives in the home for a year, during which time he renovates it, then sells it for a profit, without paying income tax.

I was surprised to read this article in Firstlinks which I considered to be a publications for investors with a capitalist bent as it is overall socialist in nature in essentially promoting a new tax on homeowners.
Also, it is inveigling in suggesting that the lack of such a tax is a significant factor in Australia's present housing crisis, which in fact is a multifactorial demand-supply problem, described in some detail by reporters such as Tom Crowly and Alan Kohler, without any mention at all about the lack of CGT on the family home.

Kevin, this is silly and inaccurate. Kohler has just written an article suggesting the cgt discount was in key factor in housing bubble: https://www.abc.net.au/news/2025-02-10/alan-kohler-investigates-how-to-fix-australia-s-housing-crisis/104920748

Another 'socialist' then?

And by the way, just because you think an exemption should be changed doesn't make you a socialist.

"Kohler has just written an article", 'housing affordability crisis':

What is housing affordability?

For capital poor workers it is the time required to save enough capital to own a house.
My preferred measure is a home, not exclusively a house, mortgage free.

Which is the main factor in home prices, Capital Gains Tax discount or Real Interest Rates?
I say Real Interest Rates.

A negative Real Interest Rate results in large home prices (capital gains) and slower saving (capital accumulation).
Which 'locks out' Slow Savers.

Currently, Fast Savers can own a home with a mortage in around a year, and without a mortgage in around 4 years. Over which time Capital Gain (price increase) is a small part of total capital cost.

Positive Real Interest Rates results in increased saving and smaller home price (smaller Capital Gains).
Favourable trade wind and sea current for 100% home ownership.

Capitalism doesn't exist in a bubble and needs a government to enforce contracts, etc. The existence of a government necessitates taxation. To be effective, taxation needs to be set such that it isn't too hard to evade it otherwise there won't be enough revenue to fund government operations that support capitalism.

Poorly articulated article. For example it would be an administrative nightmare.
No mention of inflation effect on housing prices.
No account of ongoing capital expenditure we all expense on our houses.
It would in effect be a tax on a asset which has already been heavily taxed eg stamp duty etc

Agree with Geoff on admin issues, failure to account for inflation and failure to recognise ongoing capital expenditure. Claiming that $47B-odd in tax revenue is foregone is disingenuous. Australians need to live somewhere and they cannot eat a house.

If we are going to follow the UK system of Estate Taxes on the family home, then we need to allow tax-deductible home mortgages as well. The non-deductibility of the home mortgage in Australia is a key reason for the tax-free nature of the home in this country.

The real problem is excess immigration beyond the capacity to increase the supply of housing stock, and the inclusion of the home in the Centrelink Asset test. If we moved to the NZ system of paying a basic Govt Age Pension, with no asset or income test, and a reduced level of income tax on total earnings, a lot of houses would be unlocked & downsized immediately. It is the Centrelink Asset Test that is causing a lot of the problems, in reality.

Finally, neither side of politics are serious about solving the "housing crisis", as it isn't in their personal interest to solve it.

"and the inclusion of the home in the Centrelink Asset test":
I think you intended 'exclusion'.

"moved to the NZ system of paying a basic Govt Age Pension" ... "a lot of houses would be unlocked & downsized immediately":
Less pressing need to stuff home with assets in excess of Age Pension Assessable Assets threshold.
Less demand from Age Pension age retirees for upsizing.
Greater demand for reduced operating costs (rates + maintenance ...) homes.
Greater supply of homes being sold to downsize.

Not sure there is a affordability issue as houses are snapped up even at these prices. High rates of immigration are keeping the asset bubble inflating to delay recession which normally resets the economy and arrests asset inflation and the race in customer service to the bottom. It's worth remembering there are a lot of voters who are winners from the housing crisis so lip service will suffice for others.

Having high immigration is necessarily to provide skilled workforce for the economy. It's the same reason why people are encouraged to have children, which also causes house prices to rise.

If the government wants to address the exemption of the principle property of residence from CGT in a way that is not too politically inflammatory, they should consider taxing councils and insurance companies eg apply a tax to councils who then recoup by charging home owners higher council rates. And if there is a tax on insurance companies for insuring properties, this would indirectly be a land tax collected through higher insurance costs.

What an exceptional article. Well done to the authors. Although I am a boomer sitting on a huge capital gain having been in the same house almost 40 years (inner Melbourne bayside, would sell for 20-30x buying price), there is no doubt this gigantic issue needs to come into mainstream discussion.

Of course nobody wants to be hit with it, but who likes paying any form of tax? And as many have pointed out, there is no political will to change things. Home owning voters would indeed revolt.

However, there are the inter-generational equity and owner/renter equity arguments, as well as the massive distortions in our economy as resources are directed to housing, and housing unaffordability.

Well done again. I doubt we'll see this in the newspapers!

Maybe a fund could be set up from extra the tax collected from the 20-30x gains from the boomers PPR who have had their house 40+ years and used to pay struggling boomers rental costs and young peoples rental costs who are now paying excessive prices. Think of that tax on the PPR as a cost for all the tax payer funded infrastructure that has benefitted the house prices in certain areas.

Firstly you need to bear in mind that the PPR owner also is/was a taxpayer so has already contributed to the infrastructure via income tax, stamp duty, property rates,etc. Secondly there is no need to single out boomers as the recipients of significant capital gains over the long term. It has been happening all throughout history including my pre-boomer parents’ (born in the 20s) home purchased in a working class suburb in the early mid sixties for 5k pounds ($10k) and now worth about $2m (x200 gain).

Why is it that whenever there is an asset that appreciates in value over time someone wants a cut by taxing it, but wants no share of an asset that depreciates in value over time, such as the many personal possessions that one accumulate over a lifetime. BTW this is the main reason that motor vehicles which (generally depreciate over time) are exempt from capital gains tax (because no one want a cut of a depreciating asset) but art which appreciates is not.

As I read the article my eyes widened and my jaw progressively dropped! My mind gradually grappled with a thought, thinking of the person/people who might be writing this. Before I came to the end I had drawn some general conclusions. When I actually came to the end and saw UNSW professors, I understood completely. Everyone is entitled to their opinions. I'm in full accord with that. This article though is not in accord with my ideological leanings! I also wonder, if I wrote an essay essentially rebutting the vast majority of this content, what mark would I get from the learned professors?

You would get an A+ from me

BRILLANT RESPONSE

There is nothing innately complex about exemption for principal residence for most of us understand. Your proposal to create cap limits on CG inherently increases such complexity. No offence but very academic approach to the entire discussion. Politically a lot of things would need to change - eg Green Party take over Govt and have balance in both houses.

Aust has some of the most unaffordable housing in developed economies. Whether it continues its exponential capital growth is unclear but less likely. There are politically more acceptable mechanism, including incentivising low cost housing.

I don't believe there are any plane to put CGT on on the family home, however at government level there has bee consideration in putting it in the asset and income test for the Aged Pension.

Using an average price point by location rather than a blanket set dollar fee.

Property over $X in Sydney or Melbourne would either need to be sold or a reverse mortgage taken against it.

Only at looking at stage, not necessarily implementing though.

How much wealth did people with homes near new Sydney metro train stations get?
There should be some tax.
Also include in changed age care assets test.
The increased wealth in homes has a geographical equity issue.

Among OECD countries, our tax to gross domestic product (GDP) ratio is 30th out of 38 countries making Australia a low taxing nation. In the most recent figures from the OECD, the proportion of our government’s revenue that comes from income tax, both personal and company earning is 62%, the highest in the developed world. The average of similar nations is 34%. That's because we tax income created through wealth or assets, such as land that increases in value, very differently from the way we tax income from someone who works hard and is given a raise. We massively tax income while lightly taxing wealth and assets.

Where there are disputed areas of our tax system, such as discounts to capital gains tax, negative gearing, superannuation tax concessions and family trust arrangements, many of us enjoy access to them. While they're available to all, these areas tend to be used most by older and wealthier Australians who then have vested interests in pushing hard to keep the existing rules in place.

The way our current tax system is set up means workers shoulder most of the burden, but it's unsustainable as our population ages. A “substantial review of the tax system” by former Treasury boss Ken Henry in 2009 made more than 100 recommendations, most of which have not been implemented. We know the solutions.
Whenever some real tax reform is raised by the government of the day, the opposition tends to run a scare champagne because it’s an easy way to muster criticism towards government. The electorate always seems to fall for it and hence it’s become an ingrained strategy and the voters that are aligned ideologically with the opposition in particular, eagerly jump on the bandwagon. Unfortunately, this means real reform that is likely to be good for the country and its citizens, refer to the experts not the politicians, always has trouble getting a fair hearing and ultimately gets lost in the bitter partisanship.

Most of the countries with high taxes also have very generous welfare systems and universal pensions. Our govt expects us to take out private health cover (a "privatised tax") and compulsorily save in Super for retirement. If you just add those two amounts to our nominal tax to GDP ratio it might push us up the list. Details matter, not just headline numbers.

One quick question for the authors. Do you agree with the proposal to tax unrealised capital gains on super? This will tell me a great deal about your motives and true sense of "equity and fairness".I have a suspicion you are more in the wealth redistribution camp when it comes to equity and fairness. If Yes, would you think it fair to extend to any tax on the family home?

The cost of owning a home is NOT just the headline price. There is the obvious mortgage interest which makes the sum "paid" more than 2-3 times the headline price. And the P&I payments are made from after-tax income. Those with more expensive homes have probably paid way more income tax as well. The cost of maintaining a home is significant. Do your sums and you'll find the "gain" is nowhere near as great.

The article above mentioned: -
"One possibility lies in ‘capping’ the amount of the gain that is exempt (as in the US and South African provisions)."
This could be done by only exempting the First Home up to the value of the average house price in a Suburb or State and
then paying yearly taxes on the value above that.
This certainly would be fairer and would eliminate houses valued in millions of dollars being totally tax excempt.
What an unfair law we have in this Country. It is certainly discrimating against the very people who can't afford housing anymore.

The fair way to limit the abuse of the capital gains exemption would be to bring in a limit whereby say 20 times average wages limit would apply to everyone. This could be indexed each year to the average growth in wages. With average wages now say $80,000 p.a the initial tax free threshold would be $1.6 min. This limit would increase every year, would have little affect on the average home owner but would capture those who buy a 6mio home ,spend 2mio on reno’s and then sell it for 10mio. Under my proposed limit today 1.6mio would be tax free and .4mio would be accessible as capitals gains. If the threshold increased over say 10 years to say $3.2mio then this home owner could claim a new 1.60 milo exemption i.e New threshold of 3.2mio less 1.6 min already used. No polition however would consider sauce a proposal - Liberals as they would see it as a tax on the “rich” and labor as they would argue that you cannot tax the family home

The government is always looking for ways to raise more tax from people, yet they waste and are inefficient in what they collect already. Start managing properly the existing revenue before looking for more. Of course, this relies on election of politicians who are competent and have integrity.

Same goes for the public servants. I suspect the Sir Humphrey/Minister relationship is quite common in Canberra. Chris Bowen looks a likely candidate!

Steve, Big Laugh of the Day Award. (envisaging, not particularly whom, though you may have nailed who has Sir Humphrey's gabble?)

Current rules seem to require a minimum of only 1 year as principal place of residence to obtain 100% exemption from CGT. This encourages "flippers". Why not increase the period to at least 2 years, preferably more?

“The exemption for the family home impacts tax revenue significantly. Treasury estimates indicate that the revenue forgone in 2023-24 from the exemption totals $47.5 billion.”

That sentence is worth looking at more closely, as it seems to be a significant part of the motivation behind this article. The figures are from Treasury’s “Tax Expenditure and Insights Statement” (TEIS) for 2023-24, which states that the “revenue foregone” in relation to the main residence exemption has two components: the exemption itself ($22.5 b) and the 50% CGT discount ($25 b).

These are two entirely separate issues, and by adding the two figures, this article has artificially doubled the apparent magnitude of the cost of the exemption.

Note, I say “apparent” because the “revenue forgone” concept naively and misleadingly assumes that removing the exemption would have no further consequences: no change in house prices or market volume, no impact on future house values, no impact on the age pension, no impact on individuals’ behaviour and so on.
Not a good start.

100% it's the same flawed way Treasury present super tax concessions. It assume people would not structure their investments in an efficient manner if held outside of super. No account is also given for 30% upfront cont tax on med high income earners or their 48.5% MTR.

Howard Marks makes a keen observation on trying to make a system too progressive. You simply pick up and leave.

Totally academic waste of time. No party, not even the Greens would be that stupid. The fact that all the "noise" is about "raising revenue" and not a mention of " cutting expenses" which is the real problem, tells you all you need to know about the proponents.

As an accountant in public practice I was told many times “my home is my superannuation and it’s tax free so I’ll spend my money on improvements.” Need I say more?

If the home is taxed then the interest component of the mortgage should be tax deductible which could impact the government’s revenue upside.

Furthermore, in cases where the above does not apply, at a time when many are seeking to lower the costs associated with relocation as a way to improve labour mobility this could have the opposite effect. For those who don’t have an interest expense offsetting the gain, the transaction costs of relocation could increase from around 5% up to a maximum of around 45% which will stop labour mobility (and severely dent stamp duty revenues).

Because some other countries tax the family home is not a reason to do it here. Maybe, because we don’t tax the family home they should follow us. Every tax system is different and designed to raise money to meet the nation’s outgoings.Some countries have tax deductible interest on the family home. Our tax system needs a total overhaul. Brave government to try that.

The author forgot to mention NZ has universal pension.

You miss the whole point of the article. The reason we should tax the main residence (family home) is an equity argument, i.e it is the wealthy that gain the most from the exemption, whilst the poor, who can never afford to buy a home, are disadvantaged.

What makes it worse in Australia is we don’t have an inheritance tax (as other countries do), so the wealth which builds up in the main residence is never taxed.

When you analyse it rationally, other countries who have some tax the main residence in some way, have it right. But then we humans are predictably irrational,

When you analyse it rationally - why give them any more coz they dont do a very good job with what they get already. For example UK has an inheritance tax and currently they are a basket case.

What determines the 'wealthy' and the 'poor'? This is purely a specious argument that has redistribution of wealth as its main objective, without any rational argument to support it. Other tax systems have a variety of mechanisms referred to by other commentators - tax the gain, partially tax the gain or don't tax the gain. They all interact in different ways. No attempt by the authors to analyse the impact on markets! By the way, the treatment in Australia for CGT on the main residence is not now, and was never intended to be, a 'concession". The government was clearly aware that taxing the family home was electoral poison - same situation today!!!

It’s interesting that the mendacious dropping of the inflation corrected base price wasn’t mentioned: also the very simple point that ‘we in our 70s and 80s’ simply won’t sell if CGT is levied on top of all our maintenance etc for 30-40 years. There just are no single level villas for us to (consider) moving to and releasing our larger area homes. The blatant assumption that we “invest tax free in our homes in preference to productive investment” clearly ignores the very substantial need to maintain our homes(note not investments, homes). We have already abandoned our purchased small downsizer as we, like 40% of all single property holders (not investors) by the new stratospheric costs of holding and the new breed of exploitative renters supported by massive extra imposts legally and otherwise: one would have to be retarded to hold such a property fully owned! It’s really time these economists, comfortable in continuing salaries, just began to actually look at the realities for the mute economic units we call people-and how they actually make decisions

Well said.

Ditto. Well said and an accurate assignment of an ingrained public service view.

How about all the infrastructure that was built around your house, free gift from tax payers to increase your property price. Maintenance along with house work comes with owning a house and should be given no value if tax is introduced on PPR.

The quaint notion that anything which is not taxed must 'by definition; constitute an exemption and the foregoing of revenue to the government, is an absurdity but not surprising.

Spot on ...

Spot on

Spot on max. 

Should be a limit on on much tax exemption is allowed for a principal family home maybe $500,000. People these days want to pretend a home is just live but think it is fair any profit on sale should be tax exempt. A cap should be set and any profit made above this should be taxed. So multi million dollar profits should be taxed. As for this garbage about claiming improvements and such things, they are for the owners enjoyment/benefit and should count for zero. It is about time this country reduced income tax and rewarded hard work and started taxing easy dumb profits from housing in which a lot of the gains have come from tax payer funded infrastructure built around the housing. Making quick tax free profits flipping houses while others work hard and pay income tax is not a fair way or smart way to for the Australian people.

It couldn't be retrospective and would start from a fixed date, any property purchased after that date is impacted.

If introducing a CGT on the home though, the loan would, in fairness, have to be deductible.

A similar thing for abolishing Stamp Duty. Houses that had stamp duty paid by the owners shouldn't have an annual charge billed. That should only be properties purchased after the date of abolishing Stamp Duty.

I realise the Stamp Duty issue is a separate issue, however there are I believe similarities when talking of abolishing and introducing taxes on properties.

Abolishing SD will likely boost house prices as the money not spent on SD will be used to bid up on the price of a house at Auction or used to buy a more expensive home.

The property buyers then will likely have a slightly higher mortgage than otherwise and then have the yearly stamp duty fee on top of payments. A fee that will be levied forever and will also rise. SD is, or can be a one off if you stay in the property.

Sentence under heading Policy Decisions " It very obviously offends the principle of horizontal equity as homeowners obtain an advantage that is not available to those in rental accommodation." Owners to be penalised for others' choice to not save deposit and repay a mortgage even when starting point is equal?? Sounds like a Communism principle. To most, home not "tax shelter" as the writers imply, but shelter for head they darn well get on with to save and repay. The quoted sentence offends..... me.

Don't speak from gilded cage as let a room so liable for proportional CGT and no interest deduction, saved to repay yrs ago, nor forgetting income tax paid too on rent & higher bracket, the 6 figure CGT to date is more than eye-watering on just a Proportion with all records which others may not have for costs if this daft idea gathered pace. CGT negates any idea of selling but to go out feet first so not around to see what will be paid far exceeding net rental income. The stated raising $47.5 billion and plus could be found if they took stock of spending and waste. Starting with Cenrelink should do it if universal age pension paid as UK. UK friend not received even 1 letter in 20yrs retirement, amount goes back again via her level of tax year in year out. No need costly C/link redundancy package, post staff to other departments via attrition---transfer or resign.

A Universal Pension ... I absolutely agree. Everyone gets it and we pay tax on other income.

Sally, I don't suggest tax-free universal pension and only tax on 'other income', not as in UK either. Friend is tipped by it into 45% highest tax rate, state pension negated/repaid via tax, she says fair if wealth, as most would.

Lots of discussion on this.
The concession makes sense for people selling to buy another home.
I suggest that the concession not apply to successors - so if the owner dies owning a home the CGT Concession should not apply to the Estate.
This will encourage people in their 70's and 80's to sell the family home while they are alive to secure the concession, releasing substantial holdings in areas that are already serviced by infrastructure.
If planning laws are relaxed at the same time with clear fixed planning rules, Council's having no discretion, and no right of objection if the rules are complied with, it is possible that there will be a major redevelopment of established suburbs, creating more housing near existing services.

Another complication is the fairness/equity - across generations as well as home owners v renters - over the past 30 years - related to the windfall (nominal) capital gains on their homes from the fall in inflation and intern say the long term cost of borrowing and its significant impact on the value of home.

While homeowners may have maintained their home out of after tax income as well as serviced and repaid the debt, the value of the land it sits on is a long duration asset that has benefited from the fall in interest rates.

For example, say the value of the land on quarter acre block in sydney was say $100,000, the land is like a 20 year duration asset (difficult to subdivide and to release new land) and nominal borrowing costs have fallen by a once off 4-5%....that's say $100k *20 *4= $800k....and let's not think of the land as a private annuity!

So should some and all of this windfall gain - be passed on early to kids/g kids etc as the bank of mum n dad; passed on as a tax free bequest to beneficiaries, taxed by government and shared with renters et al; taxed by govt to lower taxes on other sources of government revenue used to provide defence, care, health etc; taxed by govt to reduce the structural level of govt debt and lower its debt servicing; taxed by government to fund investments such as education of pre-school kids, et al???

That's about fairness and efficiency....and it's complicated politics!

Strongly disagree. The exemption makes perfect sense because home ownership of your residence is not merely an investment. It's your home and when you sell one you buy another. Investment assets that are sold may or may not be rolled into something else and its appropriate to tax investment gains.

But your home is different. Taxing it on sale is nothing more than a revenue grab. Can't be justified on any sensible policy grounds.

Former Treasury policy maker, for once I agree with you. Perhaps you could give insight to what has happened to anyone who had/has common sense in Canberra ( tho not source of this article) or is it that all who had it, are retired??

I agree FTPM . If Government wants more revenue , then start with property negative gearing wind down ( a good idea at the time to create renters when the country didn't want to get involved , but is now just a base-house price driver ) and Family Trusts ( a huge income tax avoidance scheme for the self employed and their children ) . There's AUD100B a year there alone .

Depends on your view of fairness and efficiencies…..and politics!!!

A lot of the historic gain was a windfall (valuation) gain on land from the fall from high to low inflation. Why should existing home owners/buyers be the major beneficiary?

And let’s get started on turnover taxes on buyers of properties. Why tax a first-time buyer the equivalent of a few years of savings in stamp duty on a home and then add another 20* years for the debt repayment!

There are not enough homes. Everything else is secondary, & tinkering with secondaries will not fix anything.
If there were more homes, capital gains would not be so high, it wouldn't look like such a huge treasure chest to tax.

"not enough homes":

There are about 32 million bedrooms in Australia according to:
https://profile.id.com.au/australia/bedrooms

and 28 million people according to:
https://en.wikipedia.org/wiki/Australia

Some could share?

Hi Dudley, always have & do, see comment, perhaps demonstrates ' what's the point? '. May be what puts people off, can attest CGT cost re progressive price climb, already paid almost 6 figures 28yrs ago & of course income tax on rent. Took capital less CGT to another home & will be taxed again on same capital transferred plus gain, if sell. Where does it end re funding dopes in Canberra, their contempt for citizens is contemptible. Miffs when such nonsense to raise only $47.6 billion & will not sit quietly for the authors to advocate for all homes. It should scare all.

Had not let a room could not get/afford loan but bank manager had faith so no complaint re past CGT, those days of faith have gone yet now a cohort wants to stifle hope of those saving for a home when CGT will raise price. Trust me, I've considered what would my market bear to recoup CGT if need to sell for RAD. Certainly not a "no worries mate" situation for the young or the upward chain. L

Do you share?
Letting a room of the family home makes the home liable for land tax.
Most people don't want to share with strangers.
many of those supposed bedrooms you mention are now WFH offices.
There are not 32mil bedrooms available.

We need more houses.

"We need more houses.":
Or more people per home rather than fewer.
Heaps of inexpensive houses where there is no / poorly paid work.
In big cities the poor can not afford the most desired locations.

"Letting a room of the family home makes the home liable for land tax."
In which jurisdictions?

'Rented secondary dwellings
If there’s another dwelling on the same land as your principal place of residence, such as a granny flat, you must pay land tax while the other dwelling is being rented. The land tax payable is a proportion based on the rented floor area.'

To suggest that people should rent out a bedroom in their family home to a stranger as a solution to housing shortage is the most absurd suggestion yet

In which jurisdictions?
Victoria for starters. Rent out any part of your home for even 1 night and you are liable for a full 12mths of land tax.

"rent out a bedroom in their family home to a stranger": Was more common before homes became 'unaffordable'.
More common is family members sharing a home, "Bunk of Dad&Mum", rather than leaving home at 18.

"Victoria for starters. Rent out any part of your home for even 1 night and you are liable for a full 12mths of land tax.":
I did not find any validation of that.
https://www.sro.vic.gov.au/land-tax/land-tax-frequently-asked-questions

On what basis, portion of and rented as at 31 Dec? In which case, tenancy lasts from 01 Jan to 30 Dec with tenant and chattels off premises for the day of scrutiny.

Stuart, interested in comment, went to Vic. site re Land Tax, has Gazetted exemptions of 2022, under the Commissioner's Guidelines. If met, exemption applies when room rent within their equation for low cost accommodation. Conditions not onerous, are reasonable. Indicates Vic. government realises this element important to low cost provision.

Taxing the family home would be a great policy to adopt by the Labour Party as that certainly would ensure that we could achieve a change of Government. Have these guys ever heard of the "Mum and Dad Bank" Where do they think the next generation are going to get the funds to purchase their homes. Out of the careful financial management of their parents Yes as long as they don't get into the clutches of these ruthless Retirement Village providers

Tony, good idea re policy for change of government, they're daft but don't think that daft despite a recent Weekend Australian article outlining in detail the imbalance of business experience/acumen between both major parties, Labour lagged. Can't now recall who but longstanding politician had only a year outside employment in a business, then union and politician. Not encouraging is it for major financial policies or balancing the books? My first thought when read was, wonder if they understand their superannuation or future pension statements?

To be fair to any government, best time to create an unpopular law or policy is when you know you are going to lose the next election anyway.

It is quant that most people advocating taxing the primary home dont think to consider most sellers buy another primary home at the then "inflated" price so if we adopted 'inflation effect accounting true to homes' then there would be no Gain" to be taxed. Even the ancients (over 80s) who sell usually use the proceeds to buy into assisted retirement villages which "eat" equity or gain from the home sale.
Of course taxing the primary residence is great debating material for tax experts but not based in reality!
It is fortunately likely to be the death knell to any politician suggesting it - how wonderful democracy is in this instance.

"most sellers buy another primary home at the then "inflated" price so …there would be no Gain to be taxed”

Not only would there be no gain to be taxed but there would actually be a loss to be borne when selling one property and buying another in the same market. The magnitude of the loss is easy to see if one considers selling a property valued at say an "inflated $1m" and buying another property in the same market with the proceeds. Because of marketing and transaction costs including stamp duty (approx. 8% in Victoria) the seller can only afford to purchase a second property valued at about $920k (unless they tip in additional equity). Thus the seller’s position after the transaction has deteriorated by about $80k no matter how much capital gain had accrued on the first property.

If we Tax any more in Australia, we will end up like the UK, where they have reached the point that tax increases lead to less tax collected….

Another option of course is to re-introduce an inheritance tax with an exemption for property passing to the surviving spouse, until such time as the survivor dies. That's what happens in other countries.

Can't see any of the current political parties willing to do that though!

Since purchasing a PPR is considered a private expense in the sense that it is paid for with after tax dollars and all holding and financing costs are not tax deductible it is not unreasonable that any capital gain should also be considered a private gain that should not be subject to tax.

But why is not taxing the family home a tax “exemption”, or “concession” as the government likes to call it? It’s never been taxed. Dubbing it an “exemption” implies that taxation has no limits. That anything in the economy not taxed (at least not yet), is revenue foregone and therefore an exemption/concession.

A “concession” implies a discount, such that its removal would imply a return to a neutral position. Yet removing the so-called CGT “concession” becomes a tax impost for the former “beneficiary”. So how was it a “concession” in the first place?

If one assumed that all money belonged to the government, only then would the amount that it allowed the hapless taxpayer to keep be truly a “concession”.

I think you nailed it with the "if all money belonged to the govt" line. This seems to be the crux of all these arguments, that the government is in fact being generous by allowing you to keep ANY money. And if they decide they need a bit more then they should jolly well be able to come and get it back off you. Just be grateful the tax isn't higher. Not taxing gains on your family home is just the government being nice to you. Sounds very much like a Marxist philosophy. OR, we could educate the academics and ATO boffins that the government has nothing without the consent of the people, and we decide how much of our money to provide them to do the basic functions of govt.

To all the commenters criticsing the authors for calling it an exemption, what are you on about? The ATO calls it an exemption: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/eligibility-for-main-residence-exemption

If they do, the authors can, and for you to say otherwise, is odd, to say the least.

I am with you Dr David. I bought my vacant block 43 years ago, and my removal house soon after. I paid for the removal and the council fees and have been renovating it ever since. All payday cash, no mortgage. Whilst we were both working and living interstate, renting at the same time as bringing up kids. We spent a fortune over the years on tools and tradies which we often paid in cash and spent our every holiday renovating and extending the home, my wife also pitched in before and after looking after our younge family. The days were as long as the sun shined, every day was a working day, we never had a day off or a real holiday for 19 years straight at one stage. After the kids expenses, every penny and cent went into the property and home. We went without so much stuff that nowadays is considered essential. As of today, we have probably over capitalized our home, break even will probably never happen but what there is, is all ours. We have no receipts to prove our cost base as there was no legal requirement to do so. The unpaid man and woman hours expended over the last 43 years are our labour of love. We now have a comfortable home on a large rural urbane block but it's market value would be half the average going rate in the city. Any federal or state government that threatens to tax our home will not receive our votes. Our governments should only spend the tax payer dollars they collect, if debt is required it should be tax payer approved with a voter approved paid off date.

Over decades credit availability has significantly contributed to increased house prices and house debt levels.
My first house in the early 70's was financed based on a 20 year loan and repayments that could not exceed 25% of the male only earnings - female earnings were not take into account.
Now, as I understand it both earnings are taken into account & the cost can be up to 33% of that income - for up to a 30 year loan

Ditto Craig.
Our first home loan was only approved on finance based on a proven savings history, I think a 10% deposit, a 20 year period, repayments of not more than 25% of the male gross earnings ( had to be proved and not including overtime etc etc, ) and the wife's income not included. The bank made sure that there was no money left in the savings account.
Just a tad different to the criteria for a loan these days.

What a load of rubbish. Everything that is not taxed is ‘revenue foregone’ as is not increasing the tax on everything we pay tax on. 50% flat tax on income would raise billions and billions.

Surely, introducing a CGT on all or some part of the gain would only increase the complexity of the tax and create a whole new industry of finding ways around it. $47bn foregone tax revenue? Absolute rubbish!
If you really want to tinker with family home taxation, perhaps consider capping the value of the home for the purpose of claiming Centrelink benefits. 

No mention of Stamp duty and the immediate sugar hit the Government would forego if Annual tax say on principal residence?

Having a minimum 5 years held otherwise full CGT for shares or investment property. 12 months is way too short for 50% CGT discount. I suspect when people do the numbers of buying and selling a property, especially an investment property with all the outgoings and full tax may think twice about actually owning more than 1 property?

Whilst the current demography of the nation supports the status quo, that will change as we see a growing cohort of younger voters outnumber those who have benefited from the financial benefits awarded to their parents and grandparents. Apart from those who have access to the bank of Mum and Dad, I suspect there will be changes over time to prevent the social divide between the have’s and have nots. And that is a good thing for our country.

Thank goodness opinion piece writers don't get elected to Parliament.

Try running for office and let me know how you go.

Perhaps the best thing to do is cut spending and live within our means. The world doesn't owe anyone a living. Raising more tax will not solve more problems. If that were the case more things of import would have already been solved.

Well said!!

Maybe start paying the right amount for a project in this country rather than subjecting taxpayers to exorbitant rip off prices.

Be careful what you wish for! Treasury is looking for ways of increasing tax revenue to pay for our massive debt and the Treasurer is attempting to start taxing unrealised capital gains. Although that is only within superannuation at present it will be the thin edge of the wedge. Imagine the impact on the cost-of-living crisis if tax is levied on the unrealised capital gains of Australian homes.

Can I ask "what 'massive debt?"

Our government debt to gdp is about half of that of the eu and uk. And about a third of the usa

So I can only conclude that if we have a "massive debt" how would you describe the other western countries?

Catastrophic!

As usual, yet another 'tax reform' proposal predicated on the factually INCORRECT basis that federal government taxation in Australia funds government spending (hence the incorrect idea of 'revenue foregone'). It does not: 'pay fors' are not required.
Once you get your head around this, I think this leads to thinking about sensible 'nudge' reform that gradually pushes people towards/away from desired/undesired behaviours and reduce the inflationary spending power of some (the very wealthy?). Because it is political poison, maybe start with a 50% exemption only on the disposal value of principal residences above, say, $20M (CPI indexed)? Whether this impacts house price affordability is another question.

Before any changes to are made to taxing the family home, how about bringing the CGT into line with what was originally proposed by Bob Hawke. This included indexing the cost base, and averaging the tax rate. These are absolutely fundamental to fairness. The arbitrary 50% concession introduced by, of all people, John Howard just won't cut it. At the moment the so called capital gains tax is actually a capital tax at marginal tax rates, for long held assets, where the cost base has inflated away to nothing much. Just because the government wants more and more tax revenue doesn't mean it should be taken unfairly. I understand that inflation is a deliberate policy of modern governments everywhere to act as a hidden tax and to inflate away government debt, but that doesn't mean the people should have put up with it. To help with this, every time a sum of money is specified in the tax laws has to have a date after it in brackets eg the tax free threshold becomes $18,200 (2012). Each year all these are indexed by inflation from the date to the present. That at least will help with bracket creep.

Howard and costello have a lot to answer for. Their change looked like a tax reduction (a vote winner) but the removal of averaging was actually an increase in tax rates and the changing from the indexed cost base to an arbitrary 50% discount had no logical to it.

This change, like the tax free super pensions (another vote buyer) should be reversed. That would immediately fix many of the problems that are being Band aided (eg limit on pension account balances, extra tax on over $3m super balances)

Super funds transferred into an Allocated Pension account have either been taxed on the way in as a concessional contribution, or come from after-tax personal contributions. To tax pension payments in the retirement drawdown phase would be double taxation. Good luck to any government that decides reversing that.

@derek

On the contrary. There is no double taxation.

When the money is contributed and as it earns it is taxed at 15%

Then when you draw it out it is taxed at marginal tax rates and you get a rebate on that tax of 15% ( the tax that the fund has already paid). Its just like the franking system or the paye system where the tax already paid reduces your tax liability.

So no double taxation

For a typical couple, say $800k (historically a large amount) each in super, drawing a super pension of $40k each, they tax on their super pension is roughly offset by the 15% rebate.

For those with large super balances and drawing a large pension, there would be a net tax liability which is exactly what you want.

All of a sudden, you don't need to limit the amount you can have in pension mode, nor the total amount you have in super, as the pre costwllo pension tax system.managed it beautifully

For people with

Perhaps a history lesson about the 15% contributions and earnings tax

Many years ago these didn't exist. Hen your employer put money into super for you, he got a tax deduction and you didn't pay any contributions tax.

Bit when you retired and started getting a pension from your super, you paid tax on that pension.

It was sort of like the farmers income equalisation treatment

Bit then compulsory super started and the government realised that they were postponing a lot of tax revenue. So they introduced the 15% contributions tax, and sold it by saying you would get it back when you started to draw a pension. Hence the special death benefit too, effectively the 15% that you paid that was still there when you died was paid back to you. When you know the history, everything is logical and fair. That was until Costello wanted to win votes and found a way that made great headlines but cost very little, as @John explained above

And Costello made everything more complicated

This is weak. Little argument against more tax. It also convenicnelty ignores the issue that is causing the problems - massive ramping of immigration. Immigration has been used by the liberal party for over 15 years to suck people into the ponzi property scam. Immigration needs to be turned off for 10 years to allow everyhing to deflate.

The solution is to de ponzi the property market.

Firstlinks shouldn’t allow such falsehoods. The author is entitled to an opinion but shouldn’t be allowed to rely on falsehoods.

Agree it needs to be reviewed. Many "home renovators" use this as a tool to make CGT gains on properties they buy specifically to improve and sell for a gain. easy. Make the home CGT exemption for 5 years (with appropriate exemptions eg interstate transfer).
Also, the home exemption for asset test purposes needs to be re-visited. The exemption should apply only to the average house price across Australia. Anything above that included as assets. At the same time tighten the regs on home equity loans. Doubt there is a pollie brave enough for this. But it is no worse that taxing unrealised gains

The matter most easily addressed is the exemption from CGT of renting a primary residence for six years. It's very easy to unfairly abuse this loophole. A good start for this to be reduced to say two years only.

The current 6-year CGT exemption for PPoR is sensible, as it allows owners to relocate for work (often overseas or interstate) for up to this period. Such relocations typically are accompanied by a higher taxable income. If the exemption was limited to 2 years as proposed by Graham W, many home owners would be best advised to decline such relocations for work, or seek recompense from their employer.

Apart from the article containing unsubstantiated claims and assumptions, like all bad taxes, this will just be passed on to the buyer, like the Victorian Gov. Land Tax. Don't for a minute think that landlords do not just add it to the rent.
The article refers to The Australia Institute paper proposed CGT on properties worth over $2m, this would just reverse the inequity from less expensive properties to dearer ones. The harder you work to get ahead the more you are taxed.
The only affect I can foresee is that properties just over the $2m threshold, will be cheaper to forestall the CGT.
The Government is not foregoing revenue, it is just a tax they have never been game to impose. Australia is a mobile society, imagine the outcry if they were taxed everytime they needed to move.

Don't give the buggers ideas!

Of course then I could deduct my estimated 600 hours a year every year maintaining house and property consuming $4,000 at Bunnings and Stihl materials and repairs, the $10,200 a year in insurance, the $7,000 in rates, $3,000 in water for the likley buyer attractions such as the orchard and garden of orchids, $100 a box 357 magnum shells for the feral deer, boots, fuel, mower engines abd so on - over 30 years I expect I'd make a loss.

I spend 24 hours per day guarding my home against arsonists and bulldozerists and would expect to not only be able to deduct fair guarding wages from the capital gain but also negatively gear against my other income.

Dr Arlette, and don't forget the interest paid on loan if as in most cases, there is.

So True

Hence why its an unproductive asset and such a shame that much of Australia's wealth is capyured by the great ponzi scheme - rather than being directed to profitable income producing innovative businesses.

"The main residence exemption also falls short in relation to notions of intergenerational equity."
According to the linked article "intergenerational housing-related within-family resource transfers have a mitigating effect on growing wealth inequality." I don't understand how this supports the first notion?

Touche

The real problem here is housing affordability. We are still building houses like the Roman's did, 2,000 years ago. One brick at a time.
Houses should be factory built and assembled on site. There should be national building regulations; it's time for Council's to go. And the big reason for encouraging home ownership is that you get a more stable population. People are not going to riot, etc, when they have a house to lose.
However with our current leadership (all parties) none of this will happen.

It’s NOT an exemption it’s a historical reality that family homes capital gains are tax free. You can not say it is costing the treasury in
lost taxes when they never ever have had it. It’s like saying the treasury is losing X$ in unrealistic birth tax on your children or unrealized breath tax every time we take a breath. There is a line you can not step over and by even suggesting taxing the family home is stepping over it .

The government wants empty nesters to down size and free up larger houses for families. Won't happen with a capital gains tax liability.

Spot on. We sold our PPoR almost 3 years ago to downsize in empty nest retirement. If that transaction had exposed us to CGT ($500k+), no way would we have sold and one more large family would have been denied a suitable home for their brood. The CGT exemption encourages property turnover, which in turn generates more stamp duty for States.

Well said Michael

The comment from Brian is spot on and this would have to start from a certain date. Does that mean every home in Australia would need to be valued on that date. It's never gonna happen.

The real political question is 'How long does the 'brave ' political party' want to stay in political oblivion?'

The typical response from the left is “tax it”. When economic activity becomes skewed, then tax all the other things too. If some things are still growing well, then clearly the answer is to tax them more.
And that how everything associated with housing is treated. The CGT discount didn’t cause the rise in housing costs, or did negative gearing. Clearly when we had zero CGT pre 1985 it didn’t cause a massive housing spike, so why should halving it cause one.

The actual cause is the imposition of CGT in 1985. This caused the imbalance, no tax on the personal home but tax on every other capital growth investment. This focused investment into the family home and pulled it from every other investment category. Coupled with only a few first class cities, high immigration, poor transport and high paying jobs concentrated around a couple of CBDs there are too many people wanting the same thing, a house close to work in the major cities. This pushed house prices higher and this encouraged more “investment” in the tax free family home. Booming prices and incomes encouraged investment in rental properties, as this was similar to their own homes which they understood and was creating wealth.

All of this pushed house prices investment away from any other capital growth business and the economy suffered for it.

No govt will introduce taxes on the family home, they will never be elected again and be turfed out in a landslide. The right approach is to remove CGT completely and make other investments have the same tax footing as the family home, though it’s likely that the horse has well and truely bolted and family home investment is just too entrenched in the Australian investment mindset.