Capital Gains Tax

The Labor parties proposed negative gearing changes are also designed to interact with their proposed changes to capital gains tax.

Building on the belief the current tax concessions for property investors have fuelled an investor driven property boom, the Labor party deem the capital gains tax system also needs an overhaul.

In their quest to help young people and first home buyers purchase homes, the proposed legislation is designed to remove the speculative behaviour of property investors which has exposed the economy to unnecessary levels of financial risk.

As per the Labor party’s website, the changes proposed to capital gains tax is outlined below.

Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

All investments made before this date will not be affected by this change and will be fully grandfathered.

This policy change will also not affect investments made by superannuation funds. The CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes.

To provide a simple example of the above, let’s assume Ms Brown purchases a new investment property for $500,000 after a Labor won election. Ms Brown owns the property for 2 years. After 2 years she decides to sell the property for $600,000. Under Labor’s legislation she will pay tax on 75% of the $100,000 capital gain. Let’s also assume Ms Brown has other income of $90,000. Therefore, Ms Brown will pay capital gains tax on $75,000 at 39% tax rate = $29,250. Under the current legislation (assuming all other facts above remain the same), Ms Brown is entitled to a 50%
discount on the $100,000 capital gain ie $50,000. Therefore, Ms Brown will pay $19,500 capital gains tax on the sale. As you can see, there’s an additional $9,750 capital gains tax to pay.

The above advice is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.


Kim Jay