By law, shouldn't any change to CGT, NG be Grandfathered in?

hey all,

title says it all - just as there are assets bought pre-1985 that are CGT exempt, wouldn't there have to be a grandfathering in of any new tax changes should any govt be daring enough to try it?

cheers

 

Governments can change tax laws anytime they wish. There is nothing stopping them taxing what we know as pre-CGT assets or removing the main residence exemption either so homes are then subject to tax. Other than political oblivion at an election. Turnbull wouldnt do that - His own party would hang him.

I would consider that changing the pre-1985 rule would be foolish with inconsistent outcomes (harming many self funded retirees and even former homes) and not likely attempted. More chance of taxing all super pensions before that occurs. Any changes would occur to only post CGT assets IMO and likely would be restricted to real property interests directly or indirectly. Perhaps even just residential property to avoid small business problems. Due to complexity I would argue law changes aimed at removing or reducing CGT discounts would be effective to all applicable CGT assets sold after 7pm on budget night.

 

Thanks PAul, that's what I'm getting at - I think any changes would have to be telegraphed in advance, otherwise the message being sent to individuals, businesses, even foreign investors is that Australia is no more stable than Zimbabwe.

That's why I feel current property investors shouldn't fret too much about changes to legislation, as you have to protect people who relied on the rules at the time they bought...

 

The pre cgt status if assets has been grandfathered for the last 32 years.

I do not know if that trend will continue.

The revenue benefit to government by taking away the pre cgt status is getting lower as time goes on.

You would have to think the risk of losing pre cgt status as low.

 

By law the government is not compelled to grandfather any changes. However, the federal government has a long standing practice not to make retrospective changes to tax law. If you have a look at Labor's proposal last year, the changes were all grandfathred.

 

How about current 50% CGT concession assets if the rate was changed to 25%?

 

Maybe?

 

Looking at past changes to CGT and Labor's proposal last year it would seem likely that any changes to CGT would be grandfathered. The Feds are adverse to retrospective changes to tax law. So if I buy a property that is subject to a 50% CGT concession when I buy it, generally speaking by the time I sell it would still be subject to the 50% CGT concession. It would be a brave government to overturn established practice and bump up tax on existing investments to that extent. The issue with grandfathering the 50% concession is that it creates another class of CGT assets. Investors with those assets would be less likely to sell, further constraining supply, which is one issue the policy changes are trying to address. This is complex to resolve.

 

Buckleys chance of grandfathering if the CGT discount is reduced or removed. Apportioning and complexity would be a nightmare. Its about tax revenue from windfall housing price growth ...sorry I mistyped that ...its about immediately addressing housing affordability. So that is appealling to the 50% of voters without an IP too. 7pm budget night would by my tip. And the main arguement why would be to ensure all taxpayers with accrued gains are fully tax at the time of a CGT event. Grandfathering would favour those who defer selling. Removing that issue is fairer on all taxpayers it could be said. (Media spin by Treasuer to Alan Jones etc) .And ALP dont oppose this under their policy so wont be too hard to pass. The hardest part will be the indignity that Shorten will claim coalition stole a policy idea.

 

Yes - Imagine telling a farming family their pre-CGT farm is to be taxed.

 

Are you sure? I thought no retrospective changes was a key plank of the Labor policy. From the alp web site:

No retrospective tax changes
Labor recognises that Australians make financial decisions in good faith on the tax arrangements in place at the time.
...
Capital gains tax
Labor will halve the capital gains discount for all assets purchased after 1 July 2017. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

All investments made before this date will not be affected by this change and will be fully grandfathered.
​

Positive plan to help housing affordability

 

Contrary to popular belief, cgt DID exist prior to 1985 when changes occurred.

Back then it all hinged on intent when the IP was purchased. And if it applied, it was taxed on 100% of the profit.

First changes (1985?) allowed indexing for inflation and included grandfathering provisions, and later changes (early 1990s) brought in the 50% reduction if held for 12 months. For some time it was up to the taxpayer to choose which method to use. Low inflation meant the 50% reduction became the norm.

I remember selling an IP in the early 1980s and our accountant writing a letter to explain why we should not pay CGT.
Marg

 

I was using pre-CGT as an example of grand fathering, It personaly doesn't affect me, I was more thinking that based on that precedent, they would almost certainly have to grandfather the 50% CGT exemption...

 

Who knows. The political climate would be more likely now to accept "property investors" being slugged no favourable tax concessions to address housing affordability. Many people see it as just upping the tax rate for high wealth taxpayers.

 

They don't "have" to do anything. The Federal Government isn't bound by precedent.

@Paul@PFI is right. Who knows? We can only guess based on previous policy changes and current policies. Until the law is passed, we will only be guessing.

 

Not quite...Income tax has always applied to profit making intentions. And still does. CGT didnt replace or modify that view and filled a gap in revenue that some argued should have been taxed. CGT was an additional tax on what used to be considered windfall gains due to change in value of property that had been acquired to produce income ...ie capital gains. Pre-CGT the sharemarket really had two sorts of shares - those that paid dividends and those that didnt. The dividend ones where popular as sale profits werent taxed. Reason why BHP and CBA are still seen as blue chip....Hangover from those days.

Originally CGT had a CPI based discount factor to adjust for inflation IF a gain occurred but not a loss. Also gains were taxed on the basis of the average over 5 years using a complex (really complex !!) formula that was a attempt to smooth the tax rate. I can recall some bizarre outcomes and dont miss that method. It was complex to explain to a client too. The 50% CGT discount was said to simplify matters and Costello was right it removed the smoothing and the indexiing and was simpler to understand and calculate. Strangely the CPI index approach was never repealed and still exists ...It just that the CPI method is almost never less than the 50% method and fewer people have post-1985 + pre-1999 assets

I believe that in Govt circles the economy has further matured and now resi property windfalls are seen as undertaxed v's other forms of investment and this is inconsistent for many economic policy objectives. I know nobody on PC wants it and I dont either but some erosion of the 50% CGT discount has a high chance of being implemented just as major tax reform changes occurred in 1985 (CGT), 1999 (CGT changes) and 2007 (Super)