New South Wales Treasurer Dominic Perrottet is looking to undertake one of the state’s biggest ever tax reforms, announcing the phasing out of stamp duty as part of a plan to pull the state budget out of the red.
It has been almost a decade since NSW last saw themselves in a deficit. Mr Perrottet has said that introducing an annual property tax on new property transactions, in lieu of outdated and high upfront stamp duty payments, would prove a key stimulus strategy, and one that would see as much as $11 billion pumped into the state’s economy over four years.
Following an economically difficult year due in large to the global health crisis, the recent budget report predicts the budget to be back in surplus by 2024; albeit with certain caveats regarding potential delays in finding a COVID-19 vaccine, and further virus outbreaks.
Stamp Duty vs Property Tax
The announcement from the State Government, which is currently open for consultation, arrived with the intention of making home ownership more achievable. Since 1990, NSW average earnings have trebled, average house prices have increased around five times, and average stamp duty on dwellings has increased more than seven times. Inevitably, homeownership has declined, from around 70% in the 1990s to around 64% today.
In the current system, stamp duty is paid every time a property is purchased – no matter whether the owner remains for one year or 20. This means that people who move more frequently pay stamp duty over and over again.
The Government is offering home buyers the choice to pay either stamp duty and land tax (where applicable) or a new smaller annual property tax. Once a property is subject to the property tax, subsequent owners must pay the property tax.
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.
First home buyers, who may be concerned that their stamp duty concessions will be impacted, will be given a grant of up to $25,000 for home refurbishing or to go towards the tax itself.
NOTE: Unless you are buying a property, there would be no change. If you have already paid stamp duty on your existing property, you would not be subject to an annual property tax. There would be no double taxation.
For more information regarding the NSW property tax proposal and how it might impact your situation – view the Treasury webpage here.