Family home 'tax break' under pressure – again

Until now the family home has always been excluded from tax and means-testing, but will that last? The family home ‘tax break’ has been singled out in a new review of the tax system by the Productivity Commission, only a week or so after new treasurer Scott Morrison urged retirees to sell their homes and spend their money, rather than leaving all their money tied up in their homes.

The Australian today reports families are paying lower tax rates than others with less than half their wealth mainly because the “family home” is ­sheltered from tax and means-testing.

Reporting on the findings of a review of the tax and welfare system, The Australian said the average effective tax rate (including the GST and net of cash welfare) is 18 per cent for families with assets of $150,000 (after subtracting any liabilities) but 13.4 per cent for those with assets of $750,000, the Productivity Commission has estimated.

The study found almost one-third of families were receiving welfare but paying no income tax (mainly retirees), while half paid income tax and ­received no welfare.

“While common preconceptions suggest that there is a high level of churn in the tax and transfer system, overall, [those that pay and receive were] just under 20 per cent of all families,” the commission said.

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The Australian says the analysis will focus ­attention on perceived unfairness in the personal income tax and welfare systems.

It also comes only weeks before Prime Minister Malcolm Turnbull is due to ­release the government’s green paper on tax reform.

As Starts At Sixty reported,  treasurer Scott Morrison has already created waves by setting his sights on those who are no longer working and their family homes.

“Anything that helps people work save and invest, anything that helps the economy become more adaptive, and deal with the transition that’s taking place and enables it to diversify, I’m interested in all of those ideas,” he said.

“With an ageing population, under the right settings, we are unlocking the capital of older Australians, then you are creating new markets for those services in Australia.”

In effect, what Mr Morrison wants is for older people to sell their homes and spend their money instead of leaving it locked up in the family home.

What do you think? Is it time to rethink the family home ‘tax break’? Is it fair that those better off are paying less tax? Or should the family home be left exempt, a fair reward?