This week there was a disturbing piece of news in the Australian Financial Review of 20 July 2010. The caption read “Calls to scrap breaks on family home”.

According to item, the estimated 2009-2010 cost of capital gains tax exemptions for family homes is now the largest tax expenditure measured by Treasury in Tax Expenditures Statement 2009 Chapter 3:

• - Capital gains tax main residence exemption $14.5 billion

• - Capital gains tax main residence exemption- discount component $17 billion

• - Total $31.5 billion

Comparative figures for 2009-2010 are:

• - Small business CGT 50 percent reduction $740 million

• - CGT roll-over for small business $280 million

• - CGT discount for individuals and trusts $5.38 billion

• - Exemption for work related items $25 million

• - Small business CGT exemption for assets held more than 15 years $120 million

• - GST-Food-uncooked, not prepared, not for consumption on premises of sale $5.6 billion

• - GST-Heath, residential care, community care and other care services $1.2 billion

• - GST- Health, medical and other health services $2.7 billion

• - GST- Education $2.55 billion

• - GST- Child care services $510 million

There are opposing views on how removal of the exemption in the future would affect the housing market, increased leveraging by households to invest in housing.

The extension to the exemption for up to six years even if the dwelling ceases to be main residence and is used to produce assessable income (rent) is one feature of the regime that may come under closer scrutiny in the future, especially the extension period of 6 years.

Once exemption has been claimed in respect of a dwelling, further exemption in respect of the next dwelling may be denied until the latter has been held as main residence for the further specified period.

Tax expenditure in respect of family homes is too big to ignore.