‘Something worth talking about’: future of CGT discount set to be determined

As the industry divide continues to populate headlines towards the capital gains tax and its impact on Australia’s housing supply, the Institute of Financial Professionals Australia (IFPA) says change could very well be on the horizon.

IFPA has warned that CGT changes could very well be looming as the Senate Select Committee’s “operation of the CGT discount” was set to deliver its final report on 17 March and the upcoming federal budget in May.

Though a topic of little common ground, the Institute said with public commentary focused on housing affordability, inequality and productivity, any reform proposal needed to be assessed through a wider lens.

Scott Heathwood, IFPA president, said this wider lens needed to focus on the real-world impacts on everyday taxpayers, small businesses, retirees, the rental market, and broader investment confidence.

“CGT reform is not an academic exercise. For Australian taxpayers, the CGT discount touches retirement planning, investment decisions, business succession, and household balance sheets,” he said.

“Whatever the committee recommends, Australians deserve certainty, sensible transition arrangements, and a genuine analysis of unintended consequences.”

In terms of the proposals, such as reducing the current discount rate and/or introducing a staggered discount tied to how long an asset has been held.

The committee has noted the CGT discount’s contribution to inequality in relation to housing and claimed it could funnel investment into existing housing, rather than more productive activity.

From this, Heathwood cautioned that the focus needed to be kept on taxpayers, not ideology and against reducing a complex system to a single political lever.

“Australians are already dealing with cost-of-living pressure and housing stress. The last thing we need is rushed tax policy that creates fresh distortions or drives investment behaviour in the wrong direction.”

“Changes to CGT settings can have knock-on effects: on rental supply, on mobility, on whether people sell assets at all, and on how small business owners plan for succession. If reform is on the table, it must be grounded in evidence, not wishful thinking.”

The Housing Industry Association (HIA) said housing supply had become a macroeconomic problem, rather than a cyclical issue, and added that if Australia wanted to ease inflation, improve productivity and restore affordability, the barriers preventing new homes from being built needed to be removed.

“Housing is already one of the most heavily taxed sectors in the economy. Further tax changes, including to negative gearing or capital gains tax, would undermine investment, reduce feasibility and worsen affordability,” HIA managing director Jocelyn Martin said.

“To unlock stalled apartment projects, HIA has proposed a national program to expand state-based pre-sale finance guarantee schemes. Across the country there are projects ready to go but stuck because of financing constraints. This is a solvable problem if housing supply is treated as a national priority.”

From all the proposed changes and ideas around the CGT discount, Tax Wars author David Montani said there had been speculation and commentary on the fairness of potential change, as well as history showing how other proposed isolated changes had fared poorly.

Despite this, Montani’s own suggestion was reducing the 50 per cent discount to 25 per cent, with no grandfathering and no asset class differentiation, and said this could only be fair if it were part of a “holistic and coherent package of changes – real reform”.

“However, a key difference today is the uncompetitive political environment. The poor state of the Opposition enables the government to do things with little political blowback,” Montani added.

“So, on this occasion, I’m predicting that the current political environment will make it politically feasible for the government to push ahead with this isolated change. But it is important to be wary of anyone who labels this isolated change as ‘reform’.”

“It might technically qualify as reform, but championing it more than the little amount it deserves is just political spin to paper over the lack of genuine reform. But you know what? I’m nonetheless looking forward to this change. After so many drab years, it’ll at least mean we’ll finally have a Budget with something in it worth talking about.”