It is clear that the various state, federal and even local governments have their eyes firmly fixed on the last great pool of untaxed assets held in Australia being the approximate $9TN worth of main residences which largely escape any form of taxation. For various reasons which I’ll outline below, the theory is good. BUT, and this is probably the biggest “BUT” in contemporary Australian tax law; no matter how much bureaucratic will there is to implement taxation of main residence assets, the political reality of it is hard…. that’s the last hurdle – political implementation.

Theory is one thing, implementation is entirely another universe. It’s the only roadblock really because the theory behind taxation is correct.

The policy logic reasons FOR taxing the main residence in Australia include:

  1. Equity – This is a big word. It encompasses a large amount of issues in this context. Just one simple example among many others might be the asset rich but low income “little old lady” living in a $20M Vaucluse mansion. She collects a full aged pension because the main residence is an excluded asset, paying pensioner discounted council and water rates, health care card medical costs, pensioner rate public transport, pensioner vehicle registration costs etc etc then, dies leaving a $30M tax exempt estate comprising solely of her main residence to her already wealthy adult children who have been subsidising her lifestyle in anticipation of the windfall gain. This is not fair, smart or sustainable.
  2. Flexibility – there’s any number of ways the tax law could be used to ease people into the mindset of taxation on the main residence. Grandfathering in the rules would ensure those who have purchased under the existing regime wont be affected or have many years to contemplate and deal with the impact of the changes. Imposing a lifetime threshold for 118-B CGT exemption equal to the transfer balance cap is another, as is the ability to contribute the proceeds into super in some concessionally taxed way. Such a sweeping reform would touch on many other areas of law, not just tax.
  3. Innovation – Australia’s taxation system, in fact its whole economic system, is geared towards land ownership. The concessions for main residence ownership and “game playing” are not sustainable, nor are they smart. Policy settings at the moment encourage particularly wealthier people to chase a trophy main residence CGT free windfall. It’s a pity that in Australia, people see homes & land as more of an investment or financial play instead of seeing a house for what it is, a place to live i.e. its either your home or someone else’s. Focusing people’s productive energy on innovation and business risk taking rather than spending most of their productive life paying down a mortgage is a change we should make.

There will be resistance & many counter arguments here as there always is to any reform. The complexities around calculating cost base of a main residence for CGT purposes are an obvious issue that will need to be addressed. Generationally resetting the Australian mindset on land, an inherently non changing and un-innovative asset, is a worthy cause to pursue.

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