Land tax or stamp duty?

Key Points

  • The NSW Government has backed down from a plan to allow property owners the choice of paying land tax over stamp duty.
  • Instead, first home buyers will be able to opt in to pay land tax for properties under $1.5 million from 16 January 2023.
  • National Seniors has been encouraging all state and territory governments to remove the financial barrier to downsizing posed by stamp duty.

An announcement, made in the NSW State Budget, will give first home buyers the choice to pay stamp duty, or opt in to pay an annual land tax.

The option to pay an annual land tax will be available only for properties less than $1.5 million and will not apply to subsequent purchasers of a property.

For anyone choosing to opt in, the annual property tax payments will be based on the land value of the purchased property. For example, the property tax rates for 2022-23 will be:

  • $400 plus 0.3% of land value for properties whose owners live in them
  • $1,500 plus 1.1% of land value for investment properties.

While this represents a back down on earlier plans to slowly replace stamp duty for land taxes for all property owners, it shows governments are open to change. Understanding why, is vitally important in shaping the outcomes of these policy debates.

Why should we introduce land taxes over stamp duty?

The proposal from the NSW Government comes on the back of a consultation in 2021, discussing the barriers to greater home ownership.

According to the consultation paper, swapping stamp duty for land tax would remove the financial impediments that large upfront costs pose to buying and selling a property. It suggested an annual land tax would make it easier for first homeowners to get into the market.

As National Seniors research has shown, older people are concerned that younger people are struggling to get into the housing market and are likely to be supportive of measures to reduce barriers to home ownership among younger people.

Yet it is important to note, stamp duty is also an issue for older Australians. For some, it creates a significant barrier to downsizing to more suitable housing.

As separate National Seniors research has shown, stamp duty costs are one of a number of factors that discourage older people from downsizing to more suitable housing later in life.

In this regard, reforming stamp duty is an important step forward, however shifting from stamp duty to land taxes may not be the fairest or simplest approach.

Are there other options?

The NSW Government originally proposed to shift all property owners to a land tax over time but has since stepped back from this by focusing only on first home buyers. But there are other ways to address the problem.

For example, National Seniors has been encouraging all state and territory governments to consider stamp duty concessions as one way to ease the burden posed by stamp duty.

Three jurisdictions – Victoria, the ACT and Tasmania – currently offer a stamp duty concession for downsizing. You can check out the details of existing stamp duty concessions via our Concessions Calculator.

In our submission to the land tax proposal, National Seniors encouraged NSW Treasury to take a different approach to its land tax proposal.

We argued that a far simpler approach, would be to allow people the option of paying stamp duty as an annual payment.

In practice, this would mean a property owner could opt to pay stamp duty as an up-front cost or as an annual installment based on a formula (just like you can for most transactions these days). If you subsequently chose to buy a new home, the slate would wipe clean and a new stamp duty amount (either up-front or annual) would apply, reflecting the new property’s value. As a further safeguard, anyone recently purchasing a property and paying stamp duty up front, would be eligible for a refund or offset if they chose to move within a certain number of years.

This would avoid double taxation giving people the flexibility to move without penalty and without having to create a whole new unpopular land tax system. It wouldn’t punish people who had recently paid stamp duty, which was one of the key concerns in moving to a land tax. It would also avoid the complicated system proposed by the NSW Treasury to have some properties with stamp duty and others with land tax.

While the New South Wales Government doesn’t seem to have adopted this approach, we are hopeful it (and other governments) will see the benefits of removing the financial barriers posed by stamp duty.

We will continue to advocate for annual payments options and stamp duty concessions, through our ongoing Better Housing campaign, which you can join.

If you’re thinking about downsizing and want to better understand the costs and benefits of doing so, take a look at our new Downsizing Calculator.

Try the Downsizing Calculator

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