Labor contemplating pulling again a serious tax break that has helped boomers get wealthy: What you must know

Property investors are on alert as the Albanese government considers changes to the 50 per cent capital gains tax discount ahead of what the Prime Minister has flagged will be a major reform budget in May.

Under rules introduced in 1999 by the Howard government, investors currently pay tax on only half the profit they make when selling an investment property or other asset held for more than a year.

Previously, capital gains tax worked differently, with profits adjusted for inflation rather than investors automatically receiving a 50 per cent discount.

Property owners can also move out of their principal place of residence and rent it out for up to six years while still remaining exempt from capital gains tax when the home is eventually sold.

A government source told The Australian Financial Review that possible changes to the tax break are being discussed for inclusion in the May budget.

Labor previously took plans to halve the capital gains tax discount to 25 per cent to the 2016 and 2019 elections, but both campaigns ended in defeat.

Those losses prompted Anthony Albanese to rule out changes to capital gains tax after becoming Labor leader, but the issue now appears to be back on the table.

Prime Minister Anthony Albanese (pictured) has flagged significant budget reform in May

The CGT discount was introduced in 1999 under John Howard (pictured left) by then treasurer Peter Costello (pictured right) 

Treasurer Jim Chalmers also asked Treasury to examine possible changes to the CGT discount in late 2024.

He hinted at broader tax reform in a recent interview with The Monthly.

‘As we think about what tax reform might come next, we’re guided by this idea of intergenerational fairness, especially for working people,’ he said.

‘We know that people would like us to do more.

‘From my point of view, I think there is more to do on tax reform, and we’ll be guided by those principles.’

The ACTU, a key Labor supporter, has also called for the CGT discount to be wound back from 50 per cent to 25 per cent.

ACTU president Michele O’Neil said reforming the discount was critical to tackling Australia’s housing crisis, alongside limiting negative gearing to a single investment property.

‘Both these changes should apply to new housing investments, leaving the existing CGT discount and negative gearing arrangements in place for up to five years before being phased out, giving people time to adjust,’ she said.

Critics argue the CGT discount entrenches advantage for those who already own property

A Greens-led Senate inquiry will hear evidence on the CGT discount, a move Senator Nick McKim (pictured said would put the spotlight on Australia’s ‘most unfair tax break’

Treasurer Jim Chalmers (pictured) said he was open to tax reforms that addressed intergenerational unfairness ahead of the May budget

The renewed debate comes as new research shows Australians now need to earn around $200,000 a year to comfortably afford a typical house in most capital cities without falling into mortgage stress.

Pressure is also mounting in Parliament, with the Greens pushing for changes.

A Greens-led Senate inquiry will examine the capital gains tax discount over the coming month, with Senator Nick McKim describing it as Australia’s ‘most unfair tax break’.

‘The discount is a textbook example of a system tilted toward the ultra-wealthy,’ he said.

‘Right now, the system makes it easier to buy a fifth property than a first.

‘It rewards speculation over work and entrenches advantage for those who already own assets.’

Senator McKim said housing is where the damage is most visible with the tax break, pushing investor demand into existing homes, driving up prices and crowding out first home buyers. 

He said the government’s own data shows the benefits overwhelmingly favour older and wealthier Australians with an eye-watering 54 per cent of the benefit flowing to the top one per cent of income earners with three quarters going to people over 50. 

‘In the last year alone, $12.7 billion was handed to those already at the top,’ he said.

‘This is not a tax break that supports everyday Australians.

‘It overwhelmingly favours the wealthiest and the oldest, while younger and poorer Australians receive next to nothing.’