Divorce and ‘widows’ tax: Independent senator David Pocock slams Treasurer Jim Chalmers

Divorcing couples are in limbo with an independent senator warning they could still lose the right to negatively gear an investment property under Labor’s vague plan to fix the “widows’ tax”.

Independent Senator David Pocock has hit back at Treasurer Jim Chalmers for promising to address the issue of divorces and deaths when it came to property ownership being transferred.

“I was disappointed by the lack of clarity in the Treasurer’s language on the weekend and would have liked him to categorically reassure Australians that this grandfathered benefit will be preserved in the next tranche of legislation,” he told The Nightly on Monday.

Senator Pocock last week withdrew an amendment to Labor’s Budget tax bills, after the Federal Government promised to revisit the issue before changes to negative gearing and capital gains tax concessions changes came into effect in July 2027.

“I withdrew my amendments to the bill last week in good faith following assurances from the Treasurer’s office that they would preserve any grandfathered negative gearing or CGT benefit on jointly owned assets in case of death and divorce,” he said.

“Their argument was that they needed more time to finesse the details, especially in the case of court orders.”

Dr Chalmers told ABC Insiders on Sunday that Labor would put forward new legislation to address the issue about tax breaks and concessions for properties being rented out.

“When the amendments were put before the Senate, we had to make clear that we were working through that issue and we intend to address it in subsequent pieces of legislation, and that’s the case,” he said.

The Financial Advice Association of Australia warned, in a June 9 submission to the Senate economics committee, that investment properties owned before Budget night, on May 12, would lose the right to negative gearing and the 50 per cent capital gains tax discount despite the grandfathering provisions.

A Treasury official confirmed, in a subsequent Senate hearing, that a 50 per cent share of an investment property being transferred during a divorce settlement or after a death would be considered a new acquisition and would therefore not have the same grandfathered rights as other properties exchanged before the Budget.

Phil Anderson, the FAAA’s general manager of policy, advocacy and standards, said the uncertainty about this amendment meant couples going through a divorce would have difficulty making plans now.

“There is a window of opportunity for that to be fixed but it’s the uncertainty that people might need to make decisions in the meantime — ‘Do I hold on to the property or am I forced to sell it?’,” he said.

“There is no question that it was an unintended consequence, one which they should have been aware of.”

Mr Anderson said there was also a risk Labor’s amendment would do nothing to address Senator Pocock’s concerns, raised in his withdrawn Senate amendment.

“The risk is that the amendment doesn’t come through as is being committed or doesn’t reflect the issue that David Pocock raised, or doesn’t fully address it,” he said.

The Federal Government last week also reached a deal with the Greens, where the minor party agreed to keep grandfathering arrangements for properties exchanged before Budget night in exchange for a ban on self-managed superannuation funds borrowing to buy a residential investment property.

Ray White chief economist Nerida Conisbee warned that stopping SMSFs from borrowing to buy a home to be rented out could deprive developers of vital financing before construction during a housing shortage.

“For larger apartment projects, pre-sales are often the difference between a project receiving construction finance or remaining stuck on paper. If one buyer group is removed from that early stage, the impact is not limited to the individual purchase,” she said.

“It can affect whether the entire project starts, how many dwellings are delivered and how quickly new rental supply reaches the market.”