Report calls for review of tax exemptions on family home

by |
The capital gains tax (CGT) will be cast into the spotlight with a new proposal to tax profits on the sale of houses over $2 million to be released by the Australia Institute. 

According to The Australian Financial Review (AFR) the report by the Australia Institute, to be released today, will show that low-income households receive almost no benefit from the capital gains tax exemption, which was estimated at $46 billion in 2015-16 and is forecast to be worth $189 billion by 2020.

As such, the report argues for the removal of the exemption for homes worth $2 million or more. Modelling in the report shows removing the capital gains tax exemption for these homes would boost the budget by $12 billion over four years.

According to the AFR, Australia Institute executive director Ben Oquist said the 50% capital gains tax discount should also be looked at.

“While super tax concessions are often talked about, it's clear capital gains tax needs reform,” he said.

“The discount and exemption are costing the budget tens of billions of dollars and while many other areas of tax reform would require compensation for the less well off, such as raising the GST, limiting or reducing the discount or exemption would affect only the very wealthy, be good for the economy and potentially be a multi-billion-dollar budget boost.”

The report claims the capital gains tax exemption on the main residence costs the federal budget more than defence, education or Medicare. It is also a big factor in housing affordability in Australia. 

“Reducing the concession is likely to have a positive impact by reducing distortions in the economy,” the report says, according to the AFR.

“At present the exemption encourages over capitalisation in main residences since any increase in their value is tax free. This has the effect of pushing up the value of housing and therefore making that housing less affordable.”

Last year fewer than 1% of owner-occupied house sales were for $2 million or more, the AFR reported.