Labor unveils 'widow tax' fix after negative gearing backlash

Labor unveils 'widow tax' fix after negative gearing backlash Tue 4 Aug 2026 at 7:45pm In short: Labor has proposed changes to ensure people who inherit an investment property from a spouse do not lose existing access to negative gearing. The government is also consulting on carve-outs and changes covering newly built homes, affordable and disability housing and its new capital gains tax system. What's next? The public has two weeks to give feedback on the proposal and Labor is flagging further tranches of legislation implementing its tax changes. Australians who inherit an investment property from their spouse will not lose any existing negative gearing access under changes proposed by Labor to fix the so-called "widow tax". The Albanese government is moving to close an unintended consequence of its own tax overhaul that meant widowers, divorcees and domestic violence victims could face less favourable tax treatment on investment properties previously shared with a partner. Under draft legislation released for consultation on Tuesday, Australians who inherit an ownership stake in an investment property from a spouse would keep the negative gearing treatment that applied before their partner's death. The change follows complaints led by ACT senator David Pocock about a flaw in Labor's budget decision to restrict negative gearing to newly built homes. The government grandfathered existing investment properties owned before May 12, but Australians who purchased established homes after budget night would no longer be able to use rental losses to reduce tax on other income from July 2027. But the legislation unintentionally created what was dubbed a "widow tax," because a person who inherited their partner's share of a jointly owned property could be treated as having acquired it after the grandfathering cut-off. Senator Pocock said this would "disproportionately negatively impact women". Labor's proposed changes, which are open for public consultation until August 21, would effectively allow the negative gearing treatment to follow the inheritance. The same would apply to people who received property as part of a divorce or separation. Labor consults on CGT, trusts and definitions Beyond the inheritance fix, Labor has also proposed a series of carve-outs and changes aimed at ensuring its negative gearing restrictions do not discourage investment in new or affordable housing. The government is seeking to extend the definition of a "new" home to apply up to 24 months from when the occupancy certificate is issued for a freshly built property, meaning negative gearing benefits would not necessarily disappear when the first owner sold. Someone who bought a qualifying new home within two years of its first occupancy certificate would also be able to treat it as new, giving developers and investors a window to sell without the next owner immediately losing the negative gearing benefit. Labor is also carving out some established properties used to provide particular types of housing. Negative gearing would remain available while homes are being used for NDIS specialist disability accommodation, affordable housing through eligible community housing providers, public housing or qualifying build-to-rent developments. There is also a practical fix for people who already own assets when the new capital gains tax (CGT) system comes in place scrapping the 50 per cent discount in favour of an indexed model tied to inflation. Rather than have to pay for a formal valuation to establish how much capital gain occurred before the changes, owners of property and some other hard-to-value assets would be able to use a formula to split the gain between the old and new system. Labor trying to clean up own mess, opposition says Acting Opposition Leader Jane Hume said Labor was "still trying to clean up a mess of its own making". "They knew this law was flawed and they had every opportunity to fix it when parliament last sat, but they didn't," she said. "Instead, they rushed through bad legislation and now they're consulting on how to repair the damage after the fact." Senator Hume said the Coalition would look "carefully" at whatever Labor brought forward. "But after watching this government legislate first and think later, Australians are entitled to ask whether they'll get it right this time," she said. Chalmers flags 'further tranches' of tax fixes A statement released by Treasurer Jim Chalmers on Tuesday said a tranche of draft changes released for consultation would ensure Labor's tax changes "appropriately apply to a range of specific taxpayer circumstances and structures". "The release of these draft materials reflects the government's commitment to consult on more complex elements of the tax reforms announced in the budget," he said. Mr Chalmers said the government was continuing to finalise implementations of the reforms in "further tranches" of legislation. "The government is continuing to implement the ambitious tax reform package announced in the budget to deliver tax cuts for millions of Australians, a fair go for first home buyers, and a fairer tax system that better aligns the treatment of labour and asset income," he said.