Is stamp duty facing the axe in Australia?

One of the fees that people dislike the most is the stamp duty on real estate acquisitions.

Due to its inflated price that has nothing to do with the actual cost of "stamping" a property transfer and a payment tax scale that was developed during a time when a million-dollar mansion could only be found in the wealthiest areas, the elimination of stamp duty cannot come soon enough for many people. This is because the price of stamp duty has little to do with the actual cost of "stamping" a property transfer.

In the wake of the coronavirus pandemic, which has the potential to put hundreds of thousands of Australians out of work, the states are preparing for extensive tax reform, which will include relief from payroll and stamp duty. This comes as they work to grow their economies in the wake of the pandemic.

Stamp duty is once again in the spotlight as the federal government works on developing a variety of emergency actions and structural reforms to rebuild the economy in the wake of the devastation wrought by COVID-19.

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It has been brought to the attention of the government by a number of powerful individuals that the stamp tax should be eliminated because it places an onerous burden on the housing market and restricts the mobility of individuals. As a result, first-time homebuyers are unable to afford homes, and those who wish to relocate closer to their places of employment, upgrade, or downsize face additional challenges.

Others argue that the current time is not the proper timing for such a major transformation because state governments are using money from stamp duty for a considerable number of funding initiatives to decrease the impact of the pandemic.

Stamp duty has been criticised for a number of reasons, including the fact that it is an inefficient form of taxation that is restricted to people who buy residential or commercial property within a calendar year, as well as the fact that it drives up the cost of property for purchasers as well as tenants. As a consequence of this, it provides a barrier to people's and businesses' capacity to travel, and according to the modelling done by the Treasury, it is expensive to collect, costing 70 cents for every dollar that is produced in revenue.

On the bright side, it results in the generation of a sizeable amount of cash for state governments, which is something those governments need today more than they have ever needed before in order to counteract some of the pandemic's repercussions on the economy.

However, the amount might change quite a bit depending on the number of real estate transactions that take place as well as the robustness of the real estate market. This can make it difficult to plan forwards for the future.

For instance, according to papers pertaining to the state budget, the amount of money collected from stamp duties in the state of New South Wales decreased by 24%, going from $9.7 billion in 2016–2017 to $7.4 billion in 2018–2019. Over the course of the same time period, it went down by 13% in Victoria and reached $6 billion in 2018–19.

Buying a home is undoubtedly growing more and more expensive due to stamp duty. According to data from Domain, the amount of stamp duty paid on a median-priced home increased between 2004 and 2019 by 102% in NSW, reaching a high of $42,269, 183% in Melbourne, reaching $44,164, and 189% in Brisbane, reaching $11,013.

Therefore, given the environment, it is getting worse. Additionally, it limits the mobility of everyone else who owns housing, such as ageing persons looking to downsize to a smaller property and those want to change careers. We require a tax system with a larger revenue base and fewer barriers to house ownership.

Stamp duty a disaster for first homeowners

Saving for the down payment and then saving for the stamp duty is a significant barrier for first-time home buyers. They would pay the same amount over a 15-year period, or whatever it is, if stamp duty were eliminated and replaced with an annual land tax. However, they are not required to pay the entire amount up front. All other states and territories continue to impose stamp duty for the time being, despite the ACT's efforts to gradually phase it out and replace it with yearly land tax payments.

A land tax would be imposed on properties with higher values

In a manner analogous to that of the income tax, there would be a progressive rate scale. This would imply that the majority of agricultural land, if not all of it, would not be required to pay any land tax at all because the value of the land per square metre would be insufficient to warrant the imposition of such a tax.

The tax change needs to be implemented gradually, and existing property owners who have already paid stamp duty should not be required to pay the new land tax until and until they make a future acquisition of real estate.

Because the majority of states and territories currently only apply land tax on second properties, such as investment homes and vacation homes, if they reach a certain value, adding land tax to owner-occupied properties could be politically challenging and contentious. This is because the majority of states and territories currently only apply land tax on second properties.

Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.