FAAA welcomes 'widow's tax' changes in CGT, negative gearing reforms

The Financial Advice Association Australia (FAAA) says it welcomes the legislative changes aimed at addressing the so-called "widow's tax," noting the amendments will protect grieving families and individuals navigating relationship breakdowns from unintended tax consequences.

In a submission to the capital gains tax (CGT) and negative gearing Tranche 2 consultation, the association said it was pleased the proposed new sections directly resolve the widow's tax issue.

It first raised concerns in a submission to the Senate Economics Committee in June, warning proposed negative gearing and CGT reforms could inadvertently penalise surviving spouses and divorcees who inherited or received a share of a residential property after the reforms' announcement date.

Under the original framework, a surviving spouse acquiring an interest in a jointly owned property following the death of their partner could have lost access to negative gearing benefits and concessional CGT treatment on the inherited portion of the property. Similar concerns applied to individuals receiving property through a divorce settlement.

The issue gained attention during a Senate Economics Committee hearing in June, where Senator David Pocock highlighted the potential implications for affected Australians.

The FAAA said the concern has now been addressed through amendments incorporated into the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, which passed both houses of parliament on August 19.

Under the new provisions, a surviving spouse who acquires their deceased partner's interest, either as a surviving joint tenant or as a beneficiary of an estate, will be able to retain the deceased's negative gearing treatment and eligibility for the new residential dwelling provisions.

The amendments also preserve access to the 50% CGT discount.

"We are pleased that the proposed new sections directly resolve the widow's tax issue," the FAAA said, and thanked the government for engaging with concerns raised in its June submission and acting swiftly to implement a solution.

The FAAA also welcomed the broader application of the changes, which extend to other co-owners of property, including joint tenants and tenants in common who receive ownership interests through inheritance.

It said the reforms represent a meaningful outcome for families facing bereavement or the end of a relationship.

Elsewhere, the FAAA recommends the government allow new residential dwelling treatment for genuinely separate, income-producing secondary dwellings, even where not separately titled, for granny flats and secondary dwellings

For CGT adjustments, the FAAA said the detailed explanation of the new law spans a chain of gross-up and removal mechanisms, each requiring capital gains to be recalculated to strip out indexation or discount benefits obtained at a different level of a trust or Attribution Managed Investment Trusts (AMIT) structure before being re-applied at the level of an underlying individual member.

It therefore asks the government to commit to comprehensive taxation guidance, worked examples and calculation tools before this measure commences, and to consider a longer lead time before application, to allow the wealth management industry and the tax and advice professions to build the necessary systems and processes.