The high fees involved are the biggest impediment to property purchases in Australia. Recent stamp duty changes are sure to interest those of us purchasing property in Victoria or NSW over the next few months.
Stamp duty varies from state to state, but with rates of up to 6% of purchase price, has a massive impact on property affordability.
Stamp duty changes in Victoria
Commercial and industrial properties will have stamp duty discounted by 50% from 1st January 2021.
Residential property worth up to $1 million dollars will have stamp duty discounted. A 50% stamp duty discount is available on brand new property, 25% on existing properties and vacant land 25%.
A contract of sale must entered between 25 November 2020 and 1st July 2021 to be eligible for the discount.
The discount can be applied with first home buyers grant use, and regardless of whether the property is for owner occupation or investment.
Homes costing over $1 million dollars do not receive a stamp duty discount. First home buyers buying property worth less than $600,000 have been exempt from stamp duty all together since 2017.
For those purchasing an established property for $600,000, the discount save around $7,500. Great news!
Check out the Victorian stamp duty rates here.
Victorian Land Tax Relief.
Land tax is payable on investment properties over a certain threshold for each state. The threshold in Victoria is particularly low at $250,000 land value (per individual, excluding principal place of residence).
For landlords significantly affected by COVID, and either having empty property or needing to discount rent by 50%, discounts in land tax are available of 25-50%. Check your eligibility for land tax discounts.
Applications for 2021 land tax relief will close on 30 June 2021.
Changes to Stamp Duty in NSW
First home buyers are currently exempt (until August 2021) from stamp duty on new homes up to $800,000 and vacant land purchased for up to $400,000. A first home buyer grant is available to eligible new home builders/purchasers of $10,000.
NSW home owners are exempt from land tax on their principal place of residence. Owners of vacant land, commercial or residential investments with a land value over $755,000 (for 2021) pay NSW land tax currently.
NSW is proposing an option for home buyers. Pay stamp duty up front (and land tax if over the threshold every year) OR skip the stamp duty and pay an annual property tax instead.
If a home buyer chooses to pay the annual property tax, the house will be forever liable for property tax instead of stamp duty and land tax, even after resale. All properties will, as a result gradually become liable for property tax rather than stamp duty (over decades).
For those home owners who have paid stamp duty, there will be no property tax payable. Feedback on the plan is still being gathered.
Pros and Cons of the Property Tax
At first glance, removing stamp duty seems like a big win for those trying to get into the property market for the first time. But first home buyers purchasing for less than $650k for established properties and $800k for new homes don’t pay stamp duty. A $25,000 grant (only for three years though) to maintain some advantage for first home buyers.
First home buyers of established properties may benefit from skipping the stamp duty and getting into their home faster.
Stamp duty is a huge expense, and discourages people to move home. Over the very long term, an annual property tax will allow people to move home for affordably. But home owners buying their forever home, the property tax will likely cost more if they stay put for 15-20 years.
For investors, the switch to a property tax would reduce the upfront expense of buying a property. Significantly, the property tax would be deductible against income. Stamp duty is not tax deductible, but the cost can be added to the capital base. This means you can’t deduct the cost of stamp duty against income, but can use the cost to reduce capital gains tax at point of sale.
The huge elephant in the room is the inability of any government in history to keep it’s word. Once committed to property tax, you can not switch back. If the government decides to significantly increase tax over time, you could be a lot worse off that you calculated when making the decision. Will they introduce something else to replace stamp duty?
Does this affect you?
What do you think of the changes? Are you planning to buy soon? Would you choose a property tax or stamp duty?
Aussie Doc Freedom is not a financial adviser and does need offer any advise. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.See full terms and conditions in footer