Late last year NSW Treasurer, Dominic Perrottet announced a proposal to slowly fade out the payment of stamp duty and replace it with an annual property tax. The justification for such significant tax reform was that stamp duty imposes prohibitive costs on people, discouraging them from buying and selling property.
However, with property prices continuing to rise, reserve prices being smashed, crowds gathering at auctions and NSW’s clearance rates sitting around 90%, some are considering that the introduction of the proposed reforms would only make matters worse. Stamp duty bars those prospective purchasers who are unable to afford the upfront payment (typically more than 4.5% of the purchase price) in addition to the required deposit amount, reducing the overall competition in the market.
The proposed tax changes are applicable to residential and commercial property and primary production land. Under these changes, purchasers will initially be given the option to ‘opt-in’ to payment of the annual property tax or pay stamp duty up front under the current scheme.
Once a property has been subject to the annual property tax scheme, the property will remain annually taxed for all subsequent owners.
Perrottet estimates that up to 50% of NSW properties will be paying the annual property tax within approximately 20 years and that stamp duty will be completely phased out by approximately 2050.
Where stamp duty is currently the 2nd largest source of tax revenue directly collected from the NSW Government, the implementation of the new tax proposal will result in a short-term hole in the State’s Budget as a result of the Government foregoing a lump sum payment of stamp duty for a smaller annual charge over time. This too has raised questions on why the Government are proposing such reforms at a time that payment of stamp duty would significantly help the NSW budget return to surplus.
Proposed property tax rates
The property tax is proposed to consist of a fixed annual amount plus a rate applied to the unimproved land value of the property (in the same way council rates are determined) and as with any form of tax, gradually increase over time with indexation.
The table below provides a summary of the proposed, but non-final annual property tax.
The NSW Government have confirmed the new property tax scheme will, in the long-term, be ‘revenue neutral’. Meaning, the NSW Government will receive the same share of property tax as it receives from stamp duty today.
Although the effects are not immediate, it is important to be aware of the proposed change in the law particularly for transactions concerning future land acquisitions.
Henry William Lawyers can assist with any related enquires. Feel free to contact our people:
Ron Zucker 0410 590 111
Steve Williams 0404 821 464
Vincent Tripodina 0408 228 10
Chelsea Woodward 0404 065 899
Anna Polhill 0431 174 352