BDO calls for a revisit of the Henry Review to help ease Housing Affordability

Mark Molesworth , Partner, Tax |

01 May 2017

With the Treasurer looking at legislated measures to slow the impact of negative gearing and capital gains tax on housing affordability, Leading tax advisory firm BDO has called for a revisit of the Henry Review1

Mark Molesworth, Tax Partner at BDO said:

“If the Government wants to looks at its options to curb the benefits of negative gearing to help ease housing affordability Ken Henry's suggestion of a 40% discount on all passive income for individuals and trusts would:

  • reduce the current 50% discount on capital gains by 10%
  • spread the benefits of a discount across a wider spectrum of the population
  • reduce the benefit of negative gearing. The proposal from the Henry review was that the 40% discount applied to both income and deductions (just like the current discount effectively applies to both capital proceeds and cost base). Therefore, negative gearing arrangements would only give 60% of their current benefit - effectively placing a curb on the benefits from negative gearing. In effect, if you made a $1,000 negative gearing loss on a rental property (or any other investment), only $600 of that loss would be claimable against other income.
  • increase the rate of franking credit wastage without amending the imputation system as such. If 40% of dividend income is treated as non-assessable, non-exempt, then 40% of the franking credits attached will not be claimable. Interestingly, this actually increases the incentive for top marginal rate taxpayers to hold capital appreciating assets in companies.”

“However the Government needs to approach this with caution as the 40% discount was one of a number of connected policies that the review recommended be implemented - one of the others was the replacement of stamp duties with a broad based land tax.

“Revisiting the Henry Review recommendations would be a good place to start for any government that was really serious about reforming the tax system.”

1The Australia's Future Tax System Review commissioned by the Rudd Government in 2008, informally known as the Henry Tax Review after Dr Ken Henry (Chair), Secretary to the Treasury.