Flow-on effect from CGT exemption removal  

A drop in sales, a dampener on renovations and new development and fewer new homes would be some of the consequences if an exemption on capital gains tax for the family home was removed.

The proposal, published in a recent report from the Australia Institute, focuses on removing capital gains tax exemption for homes worth more than $2 million, most of which are found in the inner suburbs of major cities.

While the strategy could reap extra revenue for the government, it would have the added effect of locking up inner city sites for redevelopment and stifling urban renewal.

“Existing homeowners would be penalised for moving under this proposal, which would force them to stay in homes. This unnecessarily impacts older Australians who are looking at downsizing,” said Property Council executive director Residential Nick Proud.

“Removing CGT exemptions on the principal place of residence would penalise average families who will receive a significant CGT bill for any improvement in home values if they were to sell.

“Renovations that improve the capital value on the family home, which are vital for the modernisation and more sustainable effective use of housing, would be less likely under this proposal.

“Owner occupier homes make up two-thirds of the nine million homes in Australia today and the family home is generally the savings base for retirement. This proposal would unfairly impact on people’s futures.

“Removing the CGT exemption on the family home would also see capital transfer into other tax favourable investments, such as shares, reducing housing availability, supply and affordability.

“The record pipeline of new homes for home buyers is finally translating to pockets of greater affordability, however removing CGT would impede new home delivery and turnover, having unintended consequences if introduced.