With the recent announcement from the NSW Government on possible stamp duty reform, we have fielded many questions from clients on what to expect from this and when a solution would likely come to fruition. We have tried to answer some of these main questions below, and as this is an evolving situation we will keep you updated on any relevant changes.
How do the NSW Government plan to find a solution?
There will be an initial consultation period running during Q1 2021 (January – March) after which a review will take place in Q2 (April – June). This will be followed by a second consultation phase in Q3 (July – October), so it could be nine months worth of consultations and reviews before we have an idea of the direction they may take.
We know a Government would never just abolish a tax, so what are the other options to stamp duty?
While it is unlikely that the Government will remove or reduce a tax, they may just change the way it is paid and when it is received. The options that have been tabled are fairly broad from no change, to deferred payments, to lower levels of tax rates or even replacing stamp duty with a broad based land tax. It is in the middle where the likelihood lies and the Government will try to maintain strong revenue levels through the transition period by scaling a deferred stamp duty payments system (with a possible discounted option for upfront payments) to ensure no one is better or worse off. Whether or not this this could transition into a broad based annual land tax system later, is not yet clear. It is likely, however, that the media will focus attention on the “annual land base tax” and we forecast that special interest groups will have strong opinions on that avenue. We watch this space with interest.
What is the process?
Once the review and consultation process is complete and a recommendation is proposed, it will then need to be passed by both Houses of Parliament. As the Government does not control the Upper House, this is a time when deals are negotiated and could incur another six months delay, at least.
How long will this entire process take?
The NSW Government will not rush this and as discussed above, the consultation will be extremely thorough in order to achieve an appropriate outcome. In our view, we will not see any introduction for at least two years due to all the idiosyncrasies of people who have recently paid stamp duty and those who paid it many years ago, especially regarding the idea of introducing a broad base land tax.
How will this affect the property market?
The number one question and one that should be the easiest to answer! The fact that there are absolutely no decisions made as yet and there may not be for some time in our opinion the net impact initially on the property should be zero. Ultimately, the Government will make a decision but it should be noted that they will be looking for the most equitable solution for both consumers and Government revenue alike, and therefore the various stakeholders input into the decision will have a significant impact. Considering that one of the Treasurers preferred option is to cap the limit to annual payments based on value, we could see the Northern Beaches virtually excluded from any benefits, if there are any.
Stamp duty reform should be more about the fact that it is almost three times more in real terms than it was in 1985 when they last changed the brackets, so bracket creep has been criminal in my view. This is where they should start but it drives so much revenue the skeptic in us is seeing the chess pieces being moved around the board to make it look they have done some good for consumers! However, lets stay tuned to see how it unfolds, but one thing is certain in our view, and that is that anyone who waits for it to be a better and improved system will be surely disappointed.
Will this impact the banking/lending environment?
As for questions around borrowing issues the answer is very simple – lenders are factoring in an upfront payment to cover Stamp Duty, or are factoring in your annual payment over 10 years. Either way it is the same outcome in your borrowing capacity.
We will be sure to keep you updated with any further news.