NSW Budget: How stamp duty proposed changes could affect you

A major change could make buying a home a lot cheaper for many Australians by removing one of the big expenses of getting a property.

As part of the New South Wales Budget handed down on Tuesday, the State Government has proposed to make stamp duty on property purchases optional.

The historic reform could make Australian home ownership a reality for many, with realestate.com.au chief economist Nerida Conisbee saying the proposal was “very good news” for homebuyers.

WHAT IS STAMP DUTY?

Stamp duty is a tax the government charges every time someone buys a new property.

First-time buyers already benefit from an exemption if the home they’re buying costs less than $1 million.

Stamp duty collection has traditionally been one of the state’s biggest revenue sources, earning NSW $7.4 billion and $6.9 billion, respectively, in the past two financial years.

“Stamp duty is a major impediment for people because it’s expensive,” Ms Conisbee said. “It can be up to $100,000 in NSW or can be even more.”

The amount you pay is based on the value of the home – the more expensive the house, the more you pay in stamp duty. Ms Conisbee reiterated “it is very, very expensive”, particularly in NSW.

“Sydney homes are so expensive. The more the home costs the more expensive stamp duty is,” she told news.com.au.

Ms Conisbee said that stamp duty “could be one of the issues” preventing people from moving – from the elderly living in a large family home wanting to downgrade to people who want to move for employment.

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Stamp duty changes could make home ownership a reality for Australians. Picture: iStock

‘CRITICAL’ FOR FIRST HOMEBUYERS

NAB home ownership executive Andy Kerr said any attempt to free up land purchasing and update the current system was a good thing.

He said it was “most critical for first homebuyers who are often slowed down by the cost of stamp duty”.

“For many customers, stamp duty is a big hurdle to buying a home,” Mr Kerr said.

Ms Conisbee said the new proposal is an even better incentive for first homebuyers.

First-time buyers would get a grant worth up to $25,000 under the proposed overhaul instead of an exemption from stamp duty.

The $25,000 grant can be used for furniture, whitegoods and other items for the home.

“First homebuyers don’t have to pay stamp duty plus they’ll get the extra money so it’s very good for first homebuyers,” she said.

First homebuyers would get a grant worth up to $25,000 under the new proposal. Picture: iStock

THE NEW PROPOSAL

The new model would mean stamp duty would be replaced with an annual land tax on new property transactions.

It is a model that’s already used in Canberra, which Ms Conisbee explained replaced the older stamp duty program gradually over the years.

From July 2019, stamp duty was abolished for first homebuyers in Australia’s capital city in the ACT, as long as the buyers had a household income of less than $160,000.

Ms Conisbee said the new plan for NSW would be good for the state government and would help to stimulate the economy, as well as being a positive move for homebuyers.

“It’s an incentive for people to buy and sell because it cuts out a major cost and it encourages people to buy,” she said.

IT’S A CHOICE

The new model wouldn’t be a forced phase out of stamp duty initially. Buyers get a choice.

Homebuyers would have a choice between paying a one-off stamp duty bill, which could be up to $100,000 in Sydney, or an annual property tax.

If a homebuyer chooses the annual property tax option, they would need to pay the fee every year for the entire time they have the home.

For many, going with the annual tax option could save costs in the long run. It would also avoid the need to set aside a big chunk of money upfront for stamp duty which could otherwise be used towards the home deposit.

Ms Conisbee added there is one problem with introducing the change – if you have already bought a house and have forked out the stamp duty.

“If you own your own home, you’ve already paid stamp duty, but you’ll have to pay land tax which they’ll introduce,” she explained.

The new model would be replaced with an annual land tax. Picture: iStock

‘A VERY BAD TAX’

Real Estate Institute of NSW (REINSW) CEO Tim McKibbin said stamp duty reform has been long overdue, and something the institute has actively sought for many years.

“Stamp duty is an inefficient, inequitable tax that distorts market activity. Not only does it discourage people from moving, especially downsizers who would otherwise free up housing stock, it also limits the additional expenditure home buyers could otherwise engage in,” Mr McKibbin said.

“While there is no such thing as a good tax, some are better than others. When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax,” he said.

“People in NSW have elected not to pay stamp duty by not buying property. On this basis, we welcome the news that stamp duty will finally be phased out in NSW. However, we don’t support the replacement of one property tax with another property tax.”

OUT WITH THE OLD

Treasurer Dominic Perrottet said the current stamp duty system was centuries old and in need of an overhaul to give NSW residents a modern tax system.

In his budget speech, Mr Perrottet slammed the current stamp duty model as a “relic from a bygone era”.

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

Mr Perrottet said the current system was “one of the biggest financial barriers to home ownership” in NSW and said an overhaul would enable more people to be able to buy a house.

“This is a reform proposal for NSW where more people can own their home and have more freedom to choose the right property for their family at every stage of life,” he said.

Houses are typically “expensive” in Sydney which hikes up stamp duty. Picture: iStock

Mr Perrottet said the model proposed could bring tens of thousands of dollars of relief to the average homebuyer and turbocharge economic growth.

“This is a vision for every person and family in NSW – from first home buyers trying to get a foot on the property ladder, to frontline workers moving to service our regional communities, and retirees who are ready to downsize,” he said.

Mr Perrottet said the move would be a key stimulus measure, expected to inject as much as $11 billion into the state’s economy over four years.

“Reform of the inefficient stamp duty system could also create and support thousands of jobs to boost the economy and kickstart our recovery for a prosperous, post-pandemic NSW,” he said.

The change would kick in from the second half of 2021 after seeking community feedback over the coming months.

“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.

Originally published as NSW Budget: How stamp duty proposed changes could affect you