22 June 2022
This week’s announcement of the State Budget revealed long awaited changes to stamp duty. The changes, which have been met with mixed responses by the real estate industry, will see the move away from a compulsory upfront cost and give the option for first home buyers to pay an annual land tax, with a portion based on land value. These changes, which appear to be a watered-down version of what was initially proposed during public consultation two years ago, are a good first step in what will hopefully be a long-term transition away from the archaic and inefficient stamp duty model.
Here is a quick snapshot of the changes that will likely come into effect from January 2023:
- The scheme is only available to eligible first home buyers
- The property price cannot exceed $1,500,000
- The new land tax model will be rated with an annual levy of $400 plus 0.3% of the land value of the properties whose owners live in them
- For investment properties, the rate will be $1,500 plus 1.1 per cent of land value
- These tax rates will be indexed each year, so that the average property tax payment rises in line with average incomes
- If you are buying a property from somebody who is paying the property tax, you will not be subject to the property tax (unless you are also an eligible first home buyer and you choose to pay the property tax)
- The scheme will be introduced on 16 January 2023, however, eligible buyers who transact between the date of the legislation being enacted and the 16 January date, will be eligible for a refund of the duty paid should they wish to opt into the land tax model
- Existing stamp duty concessions for first home buyers will remain in place – click here for a reminder of these
While some see this simply as trading one property tax for another, the Government does not want to lose the massive revenue from this lucrative tax scheme reported to have raised in excess of $12 billion over the past 12 months. By capping the purchase price at $1,500,000 with the new system, the Government will retain revenue from the higher end of the market to fund this transition in its trial phase. However, for property over the threshold stamp duty still entrenches the inefficient allocation of housing by stopping people from buying and selling property to suit their individual needs, so on the surface this looks like a great way to alleviate the upfront burden of paying the tax at purchase and spread it out over time, but at this stage only for lower priced properties. Existing stamp duty laws essentially stop downsizers and growing families from moving for their changing needs, and has an impact on people affected by death, divorce, and debt from making the best decisions about their property and circumstantial needs so we expect that over time the government will transition to a full land tax system and stamp duty will be eliminated.
As part of the new scheme, once a property transfers to a land tax system it cannot go back. Therefore, the next issue to resolve will be how consumers will react in the future when it comes to deciding to opt for stamp duty or land tax when purchasing. One big consideration for property owners on the Northern Beaches is that over 60% of properties will be excluded from choosing the land tax option as this reform only applies to the 40% of properties with a purchase price under $1,500,000.
In the end the land tax system should provide greater flexibility and allow people to move as needed, especially for people who move more frequently. For people who plan to buy and sell more quickly, the tax burden will be significantly reduced with the new tax being fixed based on an amortisation over an average property hold. On the flip side people who intend to stay at a property for a long time will pay the extra price once they move from where they currently are.
The important thing to remember here is that this new tax regime does not affect you until you make a move, and then you will need to understand how you can opt for the method of tax payment that suits your circumstances or if you even fit the criteria.
