The NSW Government is seeking to shake up the real estate industry in Australia’s most populous state with a once in a generation tax change by giving property buyers the choice to pay either stamp duty and land tax (where applicable) or a new smaller annual property tax.

Treasurer Dominic Perrott, in his 2021 Budget speech[i] said, “This proposed model would give buyers a choice to axe stamp duty at the point of purchase and choose an annual property charge instead. 

“There would be no impact unless you are purchasing a property, and you make the choice to change. For everyone else, everything stays the same.”

He continued, “Stamp duty is a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life. It adds tens of thousands of dollars to the cost of the biggest financial commitment most people ever make. 

“If you want to move, change jobs, or switch careers, upsize or downsize to match your family size, stamp duty can be the spanner in the works. It is holding our economy back at a time we need to be going full throttle. That’s why we believe that reform is the best way forward. 

Over time, the Government predicts the tax amendment could generate 75,000 new jobs and add an extra $3,300 of income for every household in NSW. “This would be an important step towards a tax system that propels the NSW economy forward,” added the Treasurer. 

Angus Raine, Executive Chairman, Raine & Horne is thrilled the NSW Government has finally set its sights on stamp duty. “The NSW Government wants to assist more people in NSW achieve their homeownership goals such as first home buyers, families looking to upgrade and others such as empty nesters who are ready to downsize, while also growing the NSW economy.”

The median property in NSW costs $680,000, and according to Government calculations, a buyer who opts-in to the annual property tax could save up to $20,000 over the first four years of ownership[ii].

The proposed changes could also place downward pressure on home prices over the longer term. The Government papers state, “Australian and international evidence suggests property transactions could increase by 20-30 per cent in the short-term and 40-60 per cent in the long run by introducing these changes[iii].”

Finally, an incentive for empty nesters to downsize

In many markets in Sydney paying stamp duty makes the cost of moving home far too prohibitive for many empty nesters who’d like to downsize, according to Angus.

“Moreover, the subsequent stock shortages have created a real estate stalemate that has contributed to massive price inflation over the past 20 years in these markets.”

He said, “I’d urge the government to look at a two-year stamp duty waiver on the next home for anyone over 60. This will encourage empty nesters to downsize and it will unlock thousands and thousands of big family homes in many Sydney suburbs and allow the next generation of families to enjoy these properties.”

Time to declutter Sydney

Angus believes the tax reform should focus on incentives to encourage Sydneysiders to shift to regional NSW and other states.

“Decentralising the population away from the capital will help manage down rising prices, while population growth will drive regional economies and property values,” he said.

“Like incentives for downsizers, those Sydney-siders who shift to regional and rural NSW should be given stamp duty waivers on their next homes.”

Impact on sophisticated investors

Angus also has concerns about how an annual property tax would work and possible unintended consequences. 

“We need to make sure that we aren’t robbing Paul to pay Peter by introducing an annual tax that will place more financial stress on landlords with multiple investment properties.”

The NSW Government will be seeking feedback from the public on the property tax policy framework before committing to a change. To express your views, send an email to [email protected].

[i] https://www.budget.nsw.gov.au/sites/default/files/2020-11/2020-21%20Budget%20-%20Budget%20Speech.pdf

[ii] https://www.treasury.nsw.gov.au/budget-financial-management/reform/nsw-property-tax-proposal/why-change-and-why-now

[iii] https://www.treasury.nsw.gov.au/property-tax-proposal