Changes to NSW stamp duty in response to the COVID-19 pandemic
The COVID-19 pandemic has brought about unprecedented changes to economic policy around the globe, and Australia, and New South Wales, are no exception.
Alongside the Federal Government’s payments such as JobKeeper and JobSeeker as the marketable centre-pieces of their COVID-19 economic relief scheme, the NSW State Government rolled out a plethora of tax cuts in an attempt to revive economic growth. One of the most significant changes to the tax system are the changes to stamp duty and land tax, especially given that they account for as much as 36% of NSW tax revenue.
The first change enacted by the NSW Government was the elimination of stamp duty from 1 August 2020 for eligible first home buyers for new homes valued up to $800,000, which is a 23% increase from the previous threshold of $650,000. Concessions continue to apply to homes valued up to $1 million. First home owners purchasing vacant land valued up to $400,000 are also exempt from stamp duty, which is an increase from the previous $350,000. As the first home buyers stamp duty threshold changes were introduced as part of NSW’s initial COVID scheme, they are currently set to expire on 1 August 2021.
Stamp duty is often substantial enough to disincentivise transfers and other economic activity, and is also a volatile source of state income compared to other taxes like land tax, and state governments have been on a slow transition away from reliance on stamp duty over the past few decades. Consistent with that shift, the NSW government is proposing to give home buyers the choice to pay either stamp duty and land tax, or a new annual property tax. Treasury NSW claims that by ‘removing the upfront cost of stamp duty could remove tens of thousands of dollars from the home purchase process and make it easier for first home buyers, families looking to upgrade and others looking to change their property to save what is needed to purchase their next home.’ Critics say that the change might create a ‘two-tiered’ property market, with different prices for properties subject to and not subject to the annual tax.
The NSW Treasury’s Consultation Paper ‘Buying in NSW, Building a Future’, acknowledges that the state’s economy has changed profoundly since stamp duty was first introduced in 1865, and that we accordingly need a modern tax system that reflects those changes. In particular, Australia has moved from a predominantly industrial workforce to a professional one, with statistics showing that Australians have 17 job changes across 5 different careers over their working lives. Stamp duty was implemented at a time when house prices were lower relative to income and buyers did not tend to regularly buy and sell property – which is no longer an accurate reflection of the Australian property market.
Episode 20 of Hearsay the Legal Podcast features an interview with Oliver Berkmann on the state tax regime in NSW, including stamp duty and land tax, if you would like to know more.