The Australian Financial Review (AFR) and other sources believe it is increasingly likely that the Federal government will reduce the Capital Gains Tax discount (after 12 months’ ownership) in the May 2017 Budget.
The policy backflip, comes after more than a year of savaging Labor’s proposal to halve the capital gains discount as an assault on badly needed investment.
It is understood the policy being worked on within government would be confined to property investment, and not apply to all investments such as shares, as Labor’s plan would. Neither would the Coalition policy target negative gearing, as Labor is doing.
Options being worked on include following Labor in halving the 50 per cent discount on capital gains tax to 25 per cent, or reducing it by another amount. The other is adopting a phased model in which the discount would increase the longer the property was held.
Those who have bought a property before the May Budget day would expect to have their benefits “grandfathered”, continuing until the property is sold.
With only a month to go, investors will need to instruct us immediately if they want to have a purchase secured by May 9.
As well as increasing sale-time tax cost for investors, the change could mean current landlords will hold their tax-advantaged properties for longer, making the shortage of available property even worse, and increasing the power of sellers over buyers. This knock-on effect could make property even more expensive for both homebuyers and investors.