Labor prepared to fast-track fix to negative gearing ‘widow tax’

Treasurer Jim Chalmers says the government is prepared to fast-track a fix to the unintended “widow tax” created by its changes to negative gearing if it will win the Coalition’s support to save $37 billion in NDIS spending.

Opposition Leader Angus Taylor issued the government an ultimatum for its support on the NDIS, which is to fix the loophole unintentionally cutting off home owners from negative gearing if their partner dies or they separate due to family violence.

Property investors are still able to claim rental losses on their income tax, known as negative gearing, if the home was bought or settled before budget night. But the government’s tax changes announced in May introduced an unintended consequence for co-owners of an investment property that meant if one of them died, the partner who inherited their share of the property would lose the ability to negatively gear it, since it now counted as a new ownership for tax purposes.

The federal government has introduced draft legislation that would fix the loophole as part of a second tranche of housing tax reforms. However that bill was not expected to be dealt with this fortnight.