Proposed Stamp Duty reform in NSW

As part of the NSW Government’s 2020-21 Budget, Treasurer Dominic Perrottet announced significant proposed changes to NSW’s property tax regime. Currently, a purchaser is required to make an up-front payment of stamp duty that is typically just less than 4% of the purchase price. Stamp duty has long been criticised for discouraging activity in the property market.

The NSW Government have proposed to slowly fade out the payment of stamp duty and replace it with an annual property tax.

About the property tax

The proposed tax changes are applicable to residential properties (both owner-occupied and investment), 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. Accordingly, existing home owners will not be affected until they purchase another property.

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.

Despite this, the NSW Government consider stamp duty to impose prohibitive costs on people purchasing property. Consequently, creating an imbalance between tax payers where those who move house more often, either voluntarily or by necessity, pay more tax than those who stay put.

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.

It is the intention of the NSW Government that properties purchased by a residential owner-occupier or for primary production purposes are subject to a lower tax than residential investment properties and commercial properties. 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.

Introduction of the property tax

The timeline for implementing the annual property tax has not been confirmed. It will however, along with other announcements of the NSW Government’s 2020-21 Budget, be subject to a public consultation process that ends on 15 March 2021. Following that period, the NSW Government will review submissions and report its outcomes by mid-2021.

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 +61 410 590 111

Vincent Tripodina +61 408 228 10

Chelsea Woodward +61 404 065 899

Anna Polhill +61 431 174 352