Higher Up-front Stamp Duty or Lower Annual Property Taxes

The NSW Government says it wants to help the people of NSW achieve the Australian dream of home-ownership and to grow the NSW economy.

To achieve this it is starting public consultations on property tax reform where property buyers in NSW could be given the option to pay a smaller annual property tax instead of a larger up-front stamp duty and land tax (where applicable). The smaller amount is a fixed amount plus a rate applied to the unimproved land value of a property.

This will help more people buy homes and could save them tens of thousands of dollars in up-front costs. Some buyers in certain areas of Sydney are likely to save six-figure sums if they get to opt for the new property tax.

Having the option to switch from paying stamp duty to a new property tax could boost market activity when it’s introduced because it will reduce the up-front costs of moving home, says Domain senior research analyst Nicola Powell.

It would also enable first-home buyers to purchase a smaller home to get into the market faster, continued Powell, rather than over-stretching themselves with buying a larger family home to grow into, to avoid paying two sets of stamp duty in the space of a few years.

The downside is that those nearing retirement may be reluctant to move to a smaller property if it means having to pay an annual property tax.

The annual property tax for an average owner-occupier in metropolitan NSW is expected to be $2,391 in 2020. Investors and commercial properties will pay higher rates.

What home-buyers will need to consider is what will it cost them in the long run paying an annual property tax versus the up-front stamp-duty.

The longer you hold on to your property, the more property tax you pay, which could eventually exceed the cost of stamp-duty.

Government has indicated that it could initially set price thresholds at a level which would still allow more than 80 per cent of residential properties to opt in to the new property tax. However, no specific thresholds have been set.

A key factor is that once a property has been subjected to the property tax it cannot be reverted to stamp-duty by future owners.

Investors should note that they could deduct taxes annually but only claim stamp duty costs when they sell the property.

This proposed property tax could reduce demand until a decision is made. Dr Powell says that the savings on the up-front stamp-duty could be added to the purchase price.

Thomas McGlynn, however, head of sales at inner-city agency BresicWhitney, said that they had received plenty of queries from buyers and sellers on what the changes meant for them. But when they realised reforms would be months in the making, they still wanted to go ahead with their market move sooner rather than later.