Melanie Hearse - 8 Mar, 2021

What’s happening to stamp duty for Australian housing?

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NSW is considering an innovative tax reform that will see home buyers given the choice to pay either stamp duty and land tax (where applicable) or a smaller annual property tax. Here’s what you need to know.


Labelling stamp duty the biggest barrier to home ownership in Australia, NSW Treasurer Dominic Perrottet recently unveiled his Government’s plan to scrap the duty in favour of an annual land tax for all new property transactions.

Under the current system, homebuyers pay stamp duty every time they purchase a property. This means that people who move frequently pay stamp duty many times over, while those who stay put do not. This system could conceivably prevent people from buying a new home that better serves their needs or climbing the property ladder. For first home buyers, the upfront fee can be a barrier to getting onto the said ladder in the first place.

The proposed plan, which is currently out for public consultation, will be the state’s biggest tax reform in decades. The move is tipped to boost the economy to the tune of up to $11 billion over four years and pump up the NSW Gross State Product by 1.7% over the long term. And for those looking to buy property – including first home buyers, the proposed model could provide tens of thousands of dollars of relief.

Stamp duty in NSW is currently approximately 4%. Based on Sydney’s median house price of $1,154,406, buyers currently pay approximately $46,176 to the Government. The proposed scheme would allow home buyers to instead pay an annual tax based on the value of their land.

“This is the single most important economic reform we can tackle to turn the Australian dream into NSW’s reality,” Mr Perrottet said.

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The key features of the proposed property tax rollout

The consultation process, which is open until 15 March 2021, invites New South Wales residents to have their say on the proposed model which features:

  • Giving home buyers the choice between paying stamp duty upfront or opting for the smaller annual property tax when purchasing a property. Allowing people who opt-in to the system to also eliminate any land tax liability;
  • No effect for current property owners who are not buying or selling property; 
  • A new grant for first home buyers to replace current stamp duty concessions; 
  • A property tax rate designed to support and incentivise home ownership with a lower rate for owner-occupiers and higher rates for investors and commercial properties.

The reform could be in play as soon as the second half of 2021 following the community consultation.  

“The NSW Government will work with people and communities to shape any reform over the coming months to ensure it is tailor-made for the current and future needs of our State,” Mr Perrottet said.

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Are you looking to purchase a property or refinance?

The fine print

The first thing to note is the proposed plan will be optional and you will be able to choose to pay the new annual property tax, or you may purchase your home under the old system. If you are not buying a home, the changes do not apply; you will not pay an annual tax on property you’ve already paid stamp duty and land tax on.  

For some, the proposed changes won’t mean a saving – if, for example, you are not planning on selling for a long period of time, you do not have to opt-in. As always, if you are unsure about how the various choices will impact you and your situation, seeking expert financial advice is recommended.

Also note that once a property has been purchased under the proposed property tax reform, under the current proposal, all subsequent buyers of that property would be tied to this arrangement. 

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Why overhaul the current system?

The impetus behind the reform is to make it easier for first home buyers to enter the market, and for families or other buyers to upgrade or move into a more suitable property with less upfront cost. To that end, the proposed reforms would remove the sometimes-sizeable land tax and stamp duty costs currently due upfront (potentially removing tens of thousands of dollars from the home purchase process).

Chief economist for BIS Oxford Economics, Sarah Hunter told the ABC that currently, as a first home buyer, you’ve got to save up for the deposit to put down on the house and the mortgage on top of that.

“Then you’ve also got to save up to cover the cost of the stamp duty and it’s quite a significant amount of money,” she said.

According to the NSW Treasury, Australian and international evidence suggests the changes could see an increase in property transactions of 20-30% in the short-term and 40-60% in the long run. For example, the NSW Review of Federal Financial Relations (2020) found an annual tax on land values would raise the same revenue at a lower economic cost.

A buyer in NSW purchasing a property for the median State purchase price of $680, 000 could save up to $20, 000 over the first four years of ownership.

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I’m a first home buyer, will this impact any stamp duty concessions?

First homebuyers already qualify for stamp duty concessions, and opting in to the proposed reforms would render the first home buyer stamp duty exemptions and concessions irrelevant, the plan proposes existing stamp duty concessions for first home buyers could be replaced with a grant of up to $25,000.

The maximum first home buyer duty exemption is worth $24,682 normally (the 2020-21 has seen a temporary increase), which is a full exemption from duty on a $650,000 home. Lower concessions are available for homes up to $800,000.

If the reforms are adopted, first home buyers could use the first home buyer grant to pay stamp duty on their property, or could choose the annual property tax, pay no stamp duty, and spend the grant as they wish.

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What if you’ve already bought a property in NSW?

If the proposed reforms appeal to you and suit your financial situation, you may need to chat to a finance expert about the pros and cons of waiting to see them come into effect. At this stage they are still under consideration and community consultation, however, in recognition that some potential buyers might consider delaying their purchases so they can opt-in and this may, in turn, disrupt the property market, the Government is considering providing a limited window for retrospective opt-in to the annual property tax.  

Under this proposal, homebuyers who purchase a new property in the months leading up to the new property tax legislation could be permitted to opt-in to the property tax and obtain a refund of the stamp duty previously paid.

While the primary purpose of the reforms is to make purchasing property more affordable for NSW home buyers, whether it will be the case for your circumstances will be in the finite details – meaning should the proposed plan go ahead, obtaining independent financial advice is recommended before making your choice. This opt-in approach will also see the broadest range of people and circumstances benefit from the shift.

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Words by Melanie Hearse

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