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Chalmers Pledges to End Widow's Tax on Rentals
Chalmers promised to end the widow's tax on rentals. The change removes an immediate CGT trigger for surviving spouses inheriting rental properties, while divorce treatment remains under review.
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Treasurer Jim Chalmers promised to fix laws imposing a so-called "widow's tax" on investment properties, Labor said. He did not specify a timeline or the exact mechanism for closing the loophole.
The widow's tax refers to a provision in Australian tax law that can trigger a capital gains tax liability for a surviving spouse who inherits a rental property. Under current rules, the primary residence is exempt from CGT on death. Investment properties are not. That means a widow who inherits a rental property from a deceased spouse faces a tax bill on the accrued gains calculated as if the property was sold at market value on the date of death. Industry groups and some opposition MPs had lobbied for the change, arguing the provision penalises families already dealing with bereavement.
Chalmers said the government would amend the law to remove the tax hit for surviving spouses. The announcement follows months of pressure from industry groups and opposition MPs who argued the provision penalises families already dealing with loss. The fix does not address the treatment of investment properties in divorce settlements, where similar CGT liabilities can arise when one spouse transfers a rental property to the other. Labor said that issue remains under review.
For investors holding rental properties, the change removes a specific tail risk associated with estate planning. The death of a spouse will no longer force an immediate tax event on the inherited investment property. The broader capital gains tax treatment of investment properties remains unchanged. The main residence exemption continues to apply only to a primary home. Investors should still plan for CGT on eventual sale, including the 50% discount for holdings over 12 months. The fix does not affect the discount or other CGT concessions.
The government is expected to introduce legislation in the spring session of parliament. No date has been set for a vote or for the changes to take effect. Investors should monitor the exact wording of the amendment, particularly whether it applies to all inherited investment properties or only to spousal transfers.