Albanese government fast-tracks plan to axe ‘widow tax’ in last minute deal

The Albanese government has signalled it is prepared to fast-track legislation scrapping the so-called ‘widow tax’ after the Coalition made its support for major NDIS reforms contingent on fixing the issue this week.

The widow tax is an unintended consequence of Labor’s negative gearing and capital gains tax changes announced in the May Federal Budget. 

Investment properties purchased before the Budget were due to be exempt from the new rules from July 1 next year.

However, that protection can be lost if ownership is transferred entirely to one co-owner after a divorce or the death of a partner.

As a result, widows, widowers and people separating from a spouse risk losing access to grandfathered negative gearing and capital gains tax arrangements, despite buying the property before the policy changes were announced.

The loophole prompted calls for an urgent legislative fix from across Parliament, including Opposition Leader Angus Taylor. 

Taylor ramped up pressure on the government on Monday, writing to the Prime Minister and arguing there was no justification for delaying the amendments.

In a letter seen by The Australian, Taylor accused Labor of ignoring warnings about the flaw before the legislation passed Parliament.

‘Your government was warned about this problem before the legislation passed. You subsequently promised to fix it,’ Taylor said. 

‘Yet, weeks later, Australians are still waiting for action.’

He also criticised reports the government could address the issue alongside broader trust taxation reforms, warning this would create unnecessary complexity for families and small businesses. 

‘Delaying the repeal of this cruel tax in an attempt to wedge the Coalition is unconscionable,’ he said.

The Coalition supports Labor’s proposed NDIS reforms, which are designed to generate an estimated $37 billion in savings by the end of the decade. 

However, Taylor has now tied that support to the immediate repeal of the widow tax.

Treasurer Jim Chalmers indicated the government was willing to move more quickly if that would secure passage of the broader reform package.

‘If the Opposition’s main ask is that we pass the government’s legislation quicker, then obviously I’m up for that discussion,’ Chalmers told reporters on Tuesday.

Chalmers added that the government had already committed to fixing the problem through draft legislation released last week. 

‘The government has already made it abundantly clear, crystal clear, that we are addressing some of those issues raised in the draft legislation that I put out some time ago,’ he said.

Labor previously argued there was no urgent need to rush the amendments because the tax changes do not take effect until July 1 next year. 

But the Coalition’s intervention has increased pressure on the government to act immediately. 

The issue gained national attention after independent senator David Pocock revealed he had been contacted by a 44-year-old domestic violence survivor affected by the loophole.

The woman reportedly struggled to secure finance for an investment property she was set to receive in a divorce settlement because its grandfathered tax treatment could not be guaranteed after next July.

Meanwhile, the Greens, who helped Labor pass the original Budget measures in June, have so far resisted joining other non-Labor senators to accelerate repeal of the provision. 

By linking support for NDIS reforms to the tax fix, the Coalition has created a pathway for the amendment to pass without Green backing.

If a deal is struck, it is expected to pass through the Senate this week.