Australia May Fast-Track 'Widow Tax' Fix Amid NDIS Funding Negotiations

The Australian government is signaling its willingness to accelerate a fix for an unintended consequence of its negative gearing tax changes, commonly referred to as the "widow tax." This loophole inadvertently disqualifies surviving partners from negatively gearing inherited investment properties. The Coalition has made addressing this issue a condition for its support of a significant $37 billion savings package for the National Disability Insurance Scheme (NDIS).

Treasurer Jim Chalmers stated the government is prepared to fast-track the resolution to the "widow tax" if it secures the Coalition's backing for the NDIS funding bill. Negotiations are ongoing, with Labor aiming to pass the bill this week. Opposition Leader Angus Taylor has issued an ultimatum, demanding the government rectify the loophole that "cruelly" cuts off property owners from negative gearing benefits upon a partner's death or separation due to family violence.

Under current rules, property investors can still claim rental losses against their income if the investment property was purchased before budget night. However, the government's May tax changes created a situation where if one co-owner of an investment property dies, the surviving partner inheriting their share is deemed to have a new ownership structure for tax purposes, losing the negative gearing eligibility. Independent Senator David Pocock has highlighted cases, including a woman who left an abusive relationship and could no longer secure financing for her co-owned investment property due to this change.

The federal government had introduced draft legislation to fix the loophole as part of broader housing tax reforms, but it was not expected to be debated soon. Chalmers confirmed the government is actively addressing the concerns raised in the draft legislation and is open to expediting the fix to facilitate the passage of the NDIS savings package.

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The government has already made it abundantly clear, crystal clear, that we are addressing some of those issues raised in that draft legislation that I put out some time ago, and that we have consulted on.