Stamp duty changes and investor impact

In a welcome boost for first home buyers in New South Wales, Premier Dominic Perrottet has announced that – commencing January 16, 2023 – first time buyers will have the choice of either making an up-front stamp duty payment or opting into an annual property tax.

The choice will be available on purchases up to $1.5 million in value, with the new tax seeing buyers paying $400 plus 0.3 per cent of the land value per year if they opt in. The property won’t be locked into the scheme upon any future sale.

This announcement will likely see other states paying increased attention to the impact on the NSW property market…and what happens to NSW’s bottom line when it comes to generating annual state revenue. More on that later. First, we’ll do a recap on stamp duty – a short name for what can be a complicated tax.

SO WHAT IS STAMP DUTY?

To start with, even the name itself changes depending on where you are in Australia. It’s known as conveyance duty if you happen to find yourself making a property purchase in the ACT, and land transfer duty across some other states.

But regardless of what it’s called (and we’ll stick with stamp duty), it’s essentially a tax imposed by the relevant state or territory government, payable to that government when a buyer purchases property (and sometimes even when the property is a gift).

The rate itself depends on the state or territory, the type of property purchased and its value – and it's a lucrative annual income earner for government! The more a buyer pays for their home or investment, the higher the stamp duty will be. It forms a large part of each state’s annual revenue.

WHY DO WE NEED TO PAY STAMP DUTY?

At this point, it’s worth noting where this revenue goes (or where it is intended to go) – towards improving various state services, including planning and infrastructure (ideally close to your latest investment property).

SO IF IT’S FOR THE GREATER GOOD, WHY IS IT SO CONTROVERSIAL?

Given that your hard earned money is going towards the greater good, why is stamp duty so controversial? Well, here are just a handful of issues associated with the cost:

• It can discourage people from moving or downsizing due to cost barriers
• Not only that, the additional charge can prevent people from purchasing at all, thereby exacerbating the pressure on rental markets
• It's criticised for being complicated and inefficient (and worse, archaic and antiquated)
• It adds a layer of unpredictability to state budgets
• And last but not least, stamp duty has also been accused of exacerbating the housing affordability crisis - a very hot topic in the recent election and always a newsworthy headline in the media

You guessed it, experts say there’s another reform that could help mitigate property affordability while helping to grow the economy – ditching stamp duty. Neatly bringing us back to the change announced in NSW.

Ideally Premier Perrottet wanted all buyers to be eligible, regardless of whether or not they were purchasing their first home. However such a huge reform couldn't be achieved without Commonwealth assistance due to the loss of state revenue – estimated at around $2.5 billion per year. As it stands, the Perrottet government has allocated $728 million in the state budget over the next four years to cover the revenue shortfall. We’re not talking small change here.

So, given it’s a topic of interest to the more than 60 per cent of Australians who own their home, 100 per cent of property investors, every level of government and its impact on the economy, you can see why stamp duty reform is a contentious issue, with each state and territory handling it differently. And as the name of the tax varies depending on what state or territory you’re in, so do the details!

COMPARING STAMP DUTY BY STATE AND TERRITORY

Take a look at the table below, where you’ll see how the amount of stamp duty payable can vary from state to state, and where you can find further information.

• Keep in mind that this tool should serve as a guide only and is accurate at time of publishing (June 2022).
• The comparative costs are based on an Australian citizen purchasing an existing home to reside in, valued at $600,000, with a contract date of 1 July 2022.

CAN STAMP DUTY BE REDUCED OR AVOIDED ALTOGETHER?

The key buyers state governments aim to support are owner occupiers (and particularly first home buyers), but on a state by state basis, and on a case by case basis, there may be other concessions available…if you know where to look!

At the end of the day, there’s literally no general rule you can rely on, other than keeping an eye on each area you’re considering and getting the right advice!

WHERE CAN I FIND HELP?

Pulling together the complete financial picture, and aligning that with the potential investment returns on different properties in different states, let alone different suburbs and streets, isn’t an easy task.

And that’s why, for specific information on how stamp duty applies in the state in which you intend to purchase, it’s crucial to seek professional help. You’ll need to speak to your mortgage broker, who will discuss your borrowing capacity, deposit, loan servicing and stamp duty. Regarding the contract, whether subject to finance or off the plan, you’ll need to speak to your conveyancer or solicitor, who will confirm the exact amount of your settlement figures.

At the end of the day, while paying a lower stamp duty rate means you may have additional finance to put into the property, if that property isn’t going to provide you with the best return in the long term, then how important is it? In the words of Luke Harris, founder and CEO of The Property Mentors:

Stamp duty is simply a cost of doing business. If there there are opportunities to save on stamp duty then explore those options, but consider the investment and the underlying asset first. Because if you’re purchasing the right asset and you’re holding it for the right amount of time, then the stamp duty cost will wash away over time…because you’ve made more money on the property than the stamp duty has cost you in the first place!

Luke Harris, founder and CEO of The Property Mentors

Any changes surrounding stamp duty will be incremental – they won’t happen overnight. If you sit on the sidelines waiting for reform you could easily cost yourself quite a bit of money while property prices continue to rise. If you’d like to get started sooner rather than later, book in a discovery call with one of our property experts today.

LIKE TO LEARN MORE?

Check out our Investor Intelligence podcast on stamp duty here: