As part of the 2020-21 Budget, the NSW government has announced a proposal to amend the tax that applies to the purchase of properties.
The new regime, if introduced, would allow a property purchaser the ability to choose from the following two options:
- Pay a one-off lump sum stamp duty amount (the current system)
- Pay a smaller annual property tax.
This proposal has been introduced as a result of criticism in recent time of the current stamp duty system which can act as a barrier to home ownership given the considerably large upfront cost.
Example of the proposed system
A purchaser of a residential property for $800,00.00 would be able to elect from the following two options:
- One-off stamp duty payment of $31,227.00 (together with any on-going land tax if applicable); or
- Annual property tax: (a) If investor – $1,500 + 1.1 per cent of the unimproved land value ($380,000.00) = $5,680.00 per annum; or (b) If owner occupied – $400.00 + 0.3% of the unimproved land value ($380,000.00) = $1,540.00 per annum.
Deciding on an option
Determining which option is most suitable for the particular purchaser will involve careful consideration of the buyer's circumstances with a particular focus on the future intention of the property including length of ownership.
It should also be noted that should a purchaser elect to pay the annual property tax for a property, each subsequent owner of the property in question will be required to continue to pay the property tax. Subsequent owners will not be able to elect to pay stamp duty.
Benefits
There will be a considerable benefit of the new system as it is likely to open up the market to buyers who can avoid a larger lump sum payment, which allows income to remain in households and generate economic growth. This will in turn improve the turnover of properties which will result in the creation of further jobs in the property industry.
The NSW government is currently consulting on the proposed reforms which is due to end on 30 July 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
