The arguments for the replacement of stamp duty on the purchase of residential property gathered momentum which has subsequently lead to significant relief reforms.
Paying stamp duty on the purchase of residential property has long been argued to be a deterrent to more frequent property purchases. The best example of this disincentive is in the case of a downsizer deciding against pulling the trigger on a purchase, given the significant cost added to the acquisition. The stamp duty cost in this case could be viewed as a tax on the profit derived from the downsize. For this reason, the replacement of stamp duty with a broad-based land tax is seen as an incentive for people to find more suitable housing for their needs.
Whilst stamp duty can be a significant source of revenue for the states in times of economic prosperity, the opposite is true during an economic downturn (when the states need the revenue the most). There is no better evidence of this than the significant fall in revenue at the onset of COVID-19 when the volume of property transactions decreased significantly.
Stamp duty has also always been considered a major obstacle for first home buyers. The counter argument to this is that investors often compete in the same price category, and any reduction may likely see those investors pay more, acting as a further obstacle for first home buyers entering the market.
How has stamp duty actually changed through the pandemic?
NSW was the first state to introduce the idea of a phase out model by introducing a property tax in their 2020/21 budget. Before this announcement, the NSW government had temporarily increased stamp duty concessions for first home buyers as follows:
- Up until 31 July 2021, stamp duty will be exempt for eligible first home buyers for newly built property worth up to $800,000.
- Concessions extended for newly built property worth up to $1 million.
- The stamp duty exemption on vacant land was also increased temporarily, from $350,000 to $400,000.
The plans announced in the NSW budget give buyers the choice of paying either stamp duty and land tax or a new smaller annual property tax in an attempt to stabilise revenue. The proposal also distinguishes between owner occupiers and investors by applying higher rates for the latter.
The Victorian government followed suit by also announcing discounts to stamp duty in their 2020-21 budget.
- Up until 1 July 2021, new and off-the-plan properties will see a 50% waiver on stamp duty, and established properties will see a 25% discount.
- The stamp duty discounts will be available to both investors and owner occupiers, and the threshold for discounts is on properties up to $1 million.
It is also worth noting that in July 2020 the NSW Government introduced further changes to land tax concessions to incentivise the construction of build-to-rent (BTR) properties by providing the following concessions:
- reducing the taxable land value by up to 50% for certain BTR properties constructed on or after 1 July 2020; and
- removing the surcharge purchaser duty and surcharge land tax imposed on land on which BTR properties are (or will be) constructed.
In their November budget, Victoria also announced significant measures to boost the housing sector, by halving land tax levied on BTR development from 2022 through to 2040.
Other states are likely to follow with stamp duty changes after observing the impact of the proposed changes in NSW and Victoria.
Reforms to indirect taxes as a result of the pandemic have been largely welcomed by those in the industry. The changes have been significant and should continue to stimulate the residential construction sector for years to come.
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