Stamp Duty Changes in NSW
The State Government of New South Wales recently proposed significant changes to property transfer taxes with the aim of making the dream of homeownership more achievable.
On 17 November 2020, the New South Wales State Government announced a proposal to transition NSW to a property tax system, gradually replacing stamp duty and land tax (where applicable). The property tax would be levied on the unencumbered land value, with the rates applying on a tiered basis to different types of property.
The proposal will affect:
commercial property;
residential property (both owner-occupied and investment); and
primary production land.
If implemented, the proposed changes could give you the freedom to choose between paying stamp duty upfront or paying a much smaller annual property tax, when you buy your next home.
Removing the upfront cost of stamp duty could remove tens of thousands of dollars from the home purchase process and make it easier for first home buyers, families looking to upgrade, and others looking to change their property to save what is needed to purchase their next home.
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.
Changes to Land Tax
Land tax places a large tax burden on a small number of taxpayers. If implemented, these proposed changes could give property buyers the freedom to choose either to pay stamp duty and land tax (where applicable) or to pay an annual property tax.
The NSW Budget 2020/2021
Buying in NSW, Building a Future
What the Changes would mean for you
I have no plans to buy a property
These proposed changes would provide greater choice for those looking to purchase a property in the future. Should this reform go ahead, unless you are buying a property, there would be no change. Owners who have already paid stamp duty would not be subject to an annual property tax. There would be no double tax.
I am planning to buy my first home
Under the proposed changes, eligible first home buyers could have access to a $25,000 grant and the choice to pay once-off stamp duty or an annual property tax. For example, first home buyers with a budget of $750,000 would be able to choose to pay the once-off stamp duty or the proposed annual property tax. As eligible first home buyers, they could also receive a $25,000 grant to spend as they wish.
To provide flexibility to move as their family grows, Amanda and Tim choose to pay the annual property tax instead of stamp duty, and save $14,305 over 10 years.
* An (illustrative) estimated growth rate of 3.8% per year has been applied to the property tax payment.
I am planning to buy my next home
If you are looking to purchase your new home, 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.
MOBLIE FAMILY
Couples and individuals who want the flexibility to live in the area and house they need as life changes and job opportunities emerge would have to pay a lot less. For example, a couple would choose to pay the annual property tax and save $69,154 over seven years under the proposed new scheme.
Total savings over 7 years; $69,154
* Shown as the average annual payment over the three year period.
EMPTY NESTER
A couple or individual who is looking for their forever home and expects to enjoy it for the next 20 years would decide to pay the once-off stamp duty and save $27,563 over this time.
The difference over 20 years; $27,563
* An (illustrative) estimated growth rate of 3.8% per year has been applied to the property tax payment.
I am renting
This proposed tax reform would not have an impact on renters.
HAPPY RENTERS
Should the Government implement this reform, renters could be confident about the effect of the proposed property tax on rental prices as the Government would take measures to protect tenants from any short-run changes arising from the property tax. This could include proactive monitoring of the rental market, or legislation governing the pass-through of the property tax to residential or commercial tenants.
I am planning to buy a residential investment property
Residential investors would have the choice to pay stamp duty and land tax or an annual property tax when they purchase an investment property.
Property tax would combine stamp duty and land tax into one. If you are a residential investor, you would pay a higher rate of property tax than owner-occupiers. The amount you would pay would be based on individual properties, not aggregate landholdings.
WORKING INVESTORS
Business partners who are looking to buy their second residential investment property. They plan to sell after 10 years and use the profits to fund further investment properties. As residential investors, Michelle and Rob would have the choice to pay stamp duty and land tax or the proposed property tax. Partners would choose to pay the annual property tax and save $18,250 over 10 years under the proposed changes. They would also benefit from deducting property tax from their income tax.
Total savings over 10 years; $18,250
* An (illustrative) estimated growth rate of 3.8% per year has been applied to the property tax and land tax payments.
I am planning to buy a commercial property
Under the proposed changes, if you are looking to purchase a commercial property, you could choose to pay stamp duty and land tax or an annual property tax. The annual property tax combines stamp duty and land tax into one. Commercial property owners would pay a higher rate of property tax than owner-occupiers.
If you are a business owner, the proposed annual property tax could provide opportunities to grow your business with the freedom to move and expand more frequently. You may also be able to benefit from higher income tax deductions.
BUSINESS OWNER
After 10 years leasing a small property, Steve is purchasing a warehouse to expand his business. If his business continues to grow at its current rate, he will need to move to an even larger facility in five years. Steve could benefit from higher income tax deductions under an annual property tax.
To provide the flexibility to move as his business expands, Steve chooses to pay the annual property tax and save $11,879 over five years.
* An (illustrative) estimated growth rate of 3.8% per year has been applied to the property tax and land tax payments.
** An estimated potential benefit from income tax deductions has been incorporated into the calculation.