Sarah Abood
In its submission[1] to Treasury on Tranche 2 of the CGT and negative gearing legislation, the FAAA has pointed to a number of areas where the draft laws require further refinement.
The consultation covered the exposure draft legislation/instruments and explanatory materials for four exposure drafts – negative gearing exceptions (tranche 2), new residential dwellings, CGT adjustments (tranche 2), and the CGT apportioning method.
The FAAA’s recommendations include:
CGT and new residential dwellings
- Granny flats and secondary dwellings: The FAAA recommends that the Government allow new residential dwelling treatment for genuinely separate, income-producing secondary dwellings, even where not separately titled.
- Subdivisions: The FAAA recommends consideration of a threshold, above which the entire property would be treated as a new residential dwelling.
- Debt in mixed development scenarios: The FAAA recommends that the Government provide specific guidance, ideally with worked examples, on an acceptable methodology for apportioning debt and associated borrowing costs between a new residential dwelling and other dwellings on the same land where those dwellings are funded under a common or refinanced loan facility.
- Anti-avoidance rule: The FAAA recommends that the operation of subsection 5(10) be modified so that it only captures situations where the dominant purpose is to obtain a tax benefit.
CGT adjustments
- The FAAA notes that 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 AMIT structure before being re-applied at the level of an underlying individual member.
- It therefore asks the Government to commit to comprehensive ATO 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.
The FAAA also acknowledged that Government engaged constructively with the concerns raised in the FAAA’s June submission on the “widow’s tax” issue, and acted swiftly on them in this exposure draft and through the legislation passed last week.
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