THE END OF STAMP DUTY IN NSW?
The New South Wales Government is contemplating a tax overhaul which would see stamp duty replaced by a smaller annual property tax.Should this reform be implemented, when you purchase a new home in the future, you would be given the choice to pay either an upfront stamp duty or an annual property tax. By choosing the option that suits your lifestyle and plans for the future, you would have the potential to save money and have greater flexibility.
In the current system, people pay stamp duty every time they purchase a property - no matter whether they plan to own it for one year or 20 years. This means that people who move more frequently pay stamp duty over and over again.Residential owner occupied and primary production properties would pay lower rates than investment properties, which in turn would pay lower rates than commercial properties.
Stamp duty has been a fixture in the NSW tax system since its introduction in 1865. The progressive structure of stamp duty means that the tax rate increases alongside the price of the property. Since 1990, NSW average earnings have trebled, average house prices have increased five times, and average stamp duty on dwellings has increased more than seven times. The average Australian must spend two and a half years saving to pay stamp duty, compared with one year in 1990. The widening gap between earnings and house prices is problematic, particularly given the transactional nature of stamp duty – which can operate to disincentivise transactions around property. Numerous studies have concluded that among state taxes, stamp duty inflicts the greatest damage on the economy.
Stamp duty is a transaction-based tax paid on the transfer of land, both residential and commercial. The duty is paid by the purchaser of the property, based on the sale price, which comprises the value of land and buildings on the property.
Land tax is an annual tax levied at the end of the calendar year on all property owned above the land tax threshold. A variety of exemptions apply, such as for your principle place of residence and farm land.
The current land tax system places a large burden on a small number of taxpayers. It relies on a narrow base of commercial land and investor owned residential landowners. In 2020, around 4.7 billion of revenue will be generated from about 180,000 land taxpayers, giving an average annual land tax bill of about $26,000.00 per taxpayer.
The NSW Government is of the opinion that property tax reforms will stimulate economic activity and bring about a fairer and more efficient system of taxation.
The Property Tax Proposal
The proposed reforms offer a new annual property tax which would ultimately replace both stamp duty and land tax. The Government suggests that the removal of stamp duty could deliver tangible benefits to everyone in NSW by boosting home ownership, household mobility, the economy and jobs. The changes will reduce the cost of moving houses, giving NSW residents more freedom to relocate when it suits them or when their needs change. The reforms are also likely to stimulate an increase in property transactions there therefore inject much needed life into the damaged NSW economy over the next five years.
The annual property tax would be based on unimproved land values, which is how council rates are determined. The property tax would apply to each individual property, unlike land tax which is based on an owner’s aggregate value of landholdings.
While the property tax could be based on market values of properties, which would include the value of land, buildings and other structures. Assessing tax this way could discourage property owners from renovating or adding value to their property. This would result in less investment and lower economic growth compared to a property tax on unimproved land values. The economic benefit of the reform would be approximately halved if the property tax were based on market values instead of unimproved land values.
The NSW Government has released a Consultation Paper relating to the reforms which can be accessed here. To have your say visit the HaveYourSay website or submit a written response to TaxReformTaskforce@treasury.nsw.gov.au by 15 March 2021.
Frequently Asked Questions
How will the tax be calculated?
The Property Tax would consist of a fixed amount plus a rate applied to the unimproved land value of an individual property, and not aggregate landholdings. This is broadly in line with the approach to council rates.
How will it work?
Property Tax is designed to run with the land. This means that once a property is subject to the property tax, subsequent owners must pay the property tax. Alternatively, a buyer may elect to pay the property tax at the time of purchase. In this way, the Property Tax will replace stamp duty and (where applicable) land tax.
What if I have already paid stamp duty?
There will be no double taxation. If you have already paid stamp duty on your property, then you will not have to pay property tax.
Are there different rates?
Residential owner occupied and primary production properties would pay lower rates than investment properties, which in turn would pay lower rates than commercial properties.
Are there any protections in place?
Protections would apply so that the property tax does not result in rent increases without a tenant’s agreement. Finally, a hardship scheme would recognise that taxpayers’ financial situations can change over time and ensure that no one facing hardship needs to sell their home to meet property tax liabilities.
What happens to stamp duty concessions for first home buyers?
Existing stamp duty concessions for first home buyers could be replaced with a grant of up to $25,000.