Labor moves to protect inherited investment property tax relief in reversal over ‘widow tax’ flaw
Australia’s Labor government has предложed a fix to a tax change that critics said could hit people who inherit an investment property from a spouse.
Australia’s Labor government has предложed a fix to a tax change that critics said could hit people who inherit an investment property from a spouse. Under draft legislation released for consultation on Tuesday, those heirs would keep the negative gearing treatment that already applied before their partner’s death.
The move comes after backlash over an unintended consequence in Labor’s tax overhaul — a flaw opponents dubbed the “widow tax”. It raised the prospect that widowers, divorcees and domestic violence victims could face less favourable treatment on investment properties they had previously shared with a partner. Sensitive issue. Politically, too.
Consultation opens for two weeks
The public now has two weeks to weigh in on the proposal. Labor is also flagging more rounds of legislation as it works through the rest of its tax changes.
Alongside the inheritance fix, the government is consulting on carve-outs and adjustments covering newly built homes, affordable housing and disability housing, as well as its new capital gains tax system.
The debate has put a spotlight on how tax settings can change on paper in one capital can quickly affect households in another. Negative gearing — a system used by property investors in Australia and watched closely in other markets too — remains politically charged because it shapes the after-tax cost of holding rental property.
A political repair job
The change follows complaints led by ACT senator David Pocock about the loophole in Labor’s package. His criticism helped force the issue into the open, turning a technical drafting problem into a public political test for the government.
For Labor, the fix is meant to narrow the damage without walking away from its broader tax agenda. For people caught in the gap — especially those dealing with bereavement or a relationship breakdown — the stakes are immediate. The question is not abstract. It is whether a surviving spouse keeps the same tax footing, or loses it at the worst possible time.
Labor’s next step will be to sift through submissions before bringing forward further legislation. What survives, and what gets rewritten, will shape the next phase of the government’s tax overhaul.
