Categories
News

How replacing stamp duty with a land tax in NSW could see home buyers pay a lot more for years

Australians buying a typical Sydney house will be spared paying $40,000 upfront in stamp duty under a radical plan to scrap the despised tax – but there’s a very long-term catch.

New South Wales Liberal Treasurer Dominic Perrottet’s plan to allow home buyers the option of paying land tax in quarterly installments is certainly a case of buyer beware.

Sydney is already one of the world’s most expensive property markets, with median house prices last month climbing by 0.5 per cent – back towards the psychological $1million mark despite the coronavirus recession.

Australians buying a $1million Sydney house stand to be spared paying $40,000 upfront in stamp duty under a radical plan to scrap the hated tax - but there's a very long-term catch. Pictured is a home at Lidcombe in the city's west

Australians buying a $1million Sydney house stand to be spared paying $40,000 upfront in stamp duty under a radical plan to scrap the hated tax – but there’s a very long-term catch. Pictured is a home at Lidcombe in the city’s west

The city’s mid-point price in October stood at $993,927, CoreLogic data showed, which meant someone buying a suburban home had to pay $40,065 upfront in stamp duty within three months.

Stamp duty versus land tax

A $993,927 median-priced Sydney house incurs $40,065 in upfront stamp duty

NSW Treasurer Dominic Perrottet wants owner-occupiers to have land tax option instead 

Existing tax land rate of 1.6 per cent for investors would see owner-occupiers pay almost $4,000 a year

Proposed lower rate of 0.3 per cent would them pay $1,216 a year 

Advertisement

Under a NSW government proposal, a buyer planning to live in the same house would have the option of paying $3,923 a year in land tax in quarterly installments, like council rates, if existing tax threshold rules for investors were applied to owner-occupiers.

After a decade, the amount someone paid in land tax would surpass the amount they would have coughed up in hated stamp duty.

Investor landlords and commercial property owners already pay land tax in NSW. 

In 2021, those real estate owners will be paying a 1.6 per cent tax for every dollar over $755,000 the property is worth, plus $100.

The NSW Treasury discussion paper promised owner-occupiers would pay a lower land tax rate than investors. 

The proposal is for people living in their own home to pay a 0.3 per cent land tax on every dollar above $755,000 plus $500 which would see still see a buyer of a median-priced $1million Sydney house pay $1,216 a year.

That amount would take 32 years to surpass the upfront $40,000 they would have paid in stamp duty and would be contingent on annual adjustments to the land tax threshold, known as the unimproved land value.

Under a NSW government proposal, a buyer planning to live in the same house would have the option of paying $3,923 a year in land tax in quarterly installments, like council rates, if existing rules for investors were applied to owner-occupiers

Under a NSW government proposal, a buyer planning to live in the same house would have the option of paying $3,923 a year in land tax in quarterly installments, like council rates, if existing rules for investors were applied to owner-occupiers

Mr Perrottet’s proposal to scrap stamp duty also won’t help many first-home buyers, who already have an exemption for property worth up to $650,000. 

New South Wales Liberal Treasurer Dominic Perrottet's plan to allow home buyers the option of paying land tax in quarterly installments is certainly a case of buyer beware

New South Wales Liberal Treasurer Dominic Perrottet’s plan to allow home buyers the option of paying land tax in quarterly installments is certainly a case of buyer beware

His fourth Budget, unveiled on November 17, released a 28-page discussion paper which predicted a land tax for owner-occupiers would raise $11billion over four years. 

Property stamp duty during the last financial year raised almost $7billion for the NSW government during the last financial year and was projected to reap $7.9billion in 2020-21.

Revenue from stamp duty – one of the few taxes state governments are constitutionally allowed to impose – was expected to climb by 11 per cent every year until 2023.

The property transfer duty must be paid upfront, which further delays buying a home and erodes hard-earned savings just as monthly mortgage repayments kick in.

Someone buying a Sydney apartment, with a median price of $735,350, has to pay $28,428 straight to the NSW government. 

With the land tax threshold rising to $755,000 next year, the discussion paper didn’t explain how the stamp duty alternative would apply for owner-occupiers in this category. 

Mr Perrottet’s fourth budget has forecast a deficit of $16billion for 2020-21, making up 2.5 per cent of gross state product. 

The NSW Treasury discussion paper promised owner-occupiers would pay a lower land tax rate than investors. The proposal is for people living in their own home to pay a 0.3 per cent land tax on every dollar above $755,000 plus $500 which would see still see a buyer of a median-priced $1million Sydney house pay $1,216 a year

The NSW Treasury discussion paper promised owner-occupiers would pay a lower land tax rate than investors. The proposal is for people living in their own home to pay a 0.3 per cent land tax on every dollar above $755,000 plus $500 which would see still see a buyer of a median-priced $1million Sydney house pay $1,216 a year

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.