Treasury to abolish CGT discount: Reports

The government is set to ditch the 50% capital gains tax (CGT) discount and revert to the pre-1999 system where the cost base of an asset is adjusted for inflation, according to reports.

Major news outlets report that Treasury will announce the change in the Budget, which will take place on May 12.

The AFR states the inflation-based discount will apply to all asset classes, including property and shares.

Between 1985 to 1999, the cost base of an asset was indexed so only real gains were taxed.

Investors were also subject to the averaging of large one-off capital gains over five years, which aimed to reduce tax spikes.

In 1999, Treasury introduced the CGT discount to "promote more efficient asset management and improve capital mobility, by reducing the tax bias towards asset retention, and to make Australia's capital gains tax internationally competitive."

The indexation and averaging provisions were removed for assets acquired after 30 September 1999.

Under the discount, individuals and the beneficiaries of trusts pay tax at normal rates on only half of any capital gain realised on an asset held for at least 12 months. Superannuation funds, meanwhile, received a one-third discount.

At a press conference at Parliament House last week, Treasurer Jim Chalmers flagged changes to the CGT discount but did not provide the specifics.

"We're obviously considering a whole range of changes in the tax system, but we haven't changed those policies. We haven't taken any decisions on those policies, whether it's the specific ones you mentioned, there's more work to do on our options for tax reform in this Budget," he said.

"We have been really upfront for some time now in saying that we do think that there is intergenerational unfairness in the tax system and in the housing market. I think the housing market is where some of those intergenerational issues are most obvious. We are working through a range of options to see if we can deal with them or address them in a responsible way."

Housing Industry Association (HIA) managing director Jocelyn Martin said proposed changes to negative gearing and CGT would worsen Australia's rental crisis by reducing the supply of housing and putting upward pressure on weekly rents.

"Australia has an acute shortage of rental housing. Any policy that discourages investment in rental homes will only make conditions worse for renters," Martin said.

HIA modelling shows changes to negative gearing and CGT would significantly reduce the supply of rental housing by discouraging new investment and slowing housing construction. This could also lead to tens of thousands fewer homes being built, reduced construction employment and higher rents as rental supply tightens further.

"Combined, these tax changes would have a compounding effect, fewer rental homes, lower housing construction and higher rents paid by tenants," she said.

"Renter affordability is ultimately about supply. When fewer rental homes are built, renters face higher rents and fewer choices."