Property pundits poke holes in NSW tax reform plan

New South Wales’ stamp duty reform proposal is facing major scrutiny from all corners of the property sector, with major limitations of the scheme being identified prior to its official rollout.

Sydney landmarks
The NSW government proposal is designed to make buying property in Sydney easier, but it may have unintended consequences. Photo: Shutterstock (Image source:

New South Wales’ stamp duty reform proposal is facing major scrutiny from all corners of the property sector, with major limitations of the scheme being identified prior to its official rollout. 

At first glance, a proposal to substantially reform stamp duty would be expected to be met with cheers and celebration from the property sector.

Stamp duty has long been a thorn in the side of real estate agents across Australia, with the expensive impost one of the biggest hurdles to getting on the property ladder and trading properties once you’ve climbed several rungs. 

Steve Douglas, executive chairman of leading accounting, finance and property advisory firm SMATS Group, said the cost of stamp duty had been escalating for many years, and had become increasingly restrictive due to several factors.

Mr Douglas said as home values have increased, so has the stamp duty cost per transaction, with a house traded 10 years ago having a stamp duty cost of almost double what it was when it was sold previously.

“This is the ultimate form of bracket creep and it is becoming a major financial blockage for house acquisition, as this cost is now many thousands of dollars,” he said.

“Unlike the house purchase cost, stamp duty is not funded by the lenders when you buy a property.  

“So all buyers need their deposit on the house plus the stamp duty costs - this limits the buyer’s budget significantly.”

Other issues with the current stamp duty regime identified by Mr Douglas include double dipping on a new property, with state governments receiving stamp duty as well as a GST component for new builds, while foreign buyers are subject to a third tax, drastically reducing the level of international investor activity in Australian property.

Against that backdrop, a proposed change to the system would seemingly be welcome, but that’s not necessarily the case with the New South Wales government’s proposal.

NSW Treasurer Dominic Perrottet recently announced that homebuyers in the state would be given the option of paying stamp duty up front or have the property subject to an annual tax.

If the buyer chooses the lower, annual option, the property would be subject to that tax in perpetuity, and a new buyer would no longer be given the choice.’

Mr Douglas said a key shortcoming of the proposal, which is open for public consultation, was that there was no incentive or reduction for choosing the up front or annual option.

“It is just a falsehood that it’s better because it is payable over time rather than upfront,” he said.  

“It doesn’t address the economics of the value of this tax and burden on the property industry and general economy.

“Given that once a property is opted in for deferral, it stays on deferral for all subsequent buyers, this could make property that has been locked in to the deferral scheme less attractive to those intending to have long term ownership and indeed make the cost of stamp duty far greater in the long term with a annual cost compared to a once off up-front amount.”

Lawrence Dujmovic, a client director of Pitcher Partners Sydney’s tax advisory group, said the proposal to give homebuyers the choice of paying up front or annually was "seductively simple, yet potentially punishing."

Mr Dujmovic said an average buyer trying to enter the property market would likely fall for the seduction of paying a smaller annual property tax rather than the significantly larger up front stamp duty amount.

“However, the payment of Stamp Duty is a ‘one-off’ burden, the pain of which subsides overtime,” Mr Dujmovic told Australian Property Investor Magazine. 

“On the other hand, the APT is forever; year in year out until the property is sold by the current owner, a pain which is relived each year (on top of council rates). 

“It’s the ‘forever’ aspect that punters will miss with the APT.  APT is the state government’s gift that keeps on giving, irrespective of the property cycle.”

Mr Dujmovic said the annual tax may also be unfair for freehold property owners.

“Under the proposal, owner-occupied residential property would potentially attract an APT of $500 + 0.3 per cent of the unimproved value,” he said.

“It is generally accepted that the unimproved land value for a unit is less than that of a freehold property; yet their market values may be the same. 

“This would result in a freehold property owner paying more APT than a person who owns a unit with the same market value.  

“What distortions will this create in property construction, more units?”

Real Estate Institute of New South Wales chief executive Tim McKibbin described the proposal as a missed opportunity to provide relief to the economic challenges of the COVID pandemic.

Mr McKibbin said if a buyer chose to pay the annual tax, it would take around 12.3 years to pay an amount equal to the up-front stamp duty for a median-priced house in Sydney.

“Given the average length of time people stay in a home, which is a similar timeframe, It goes to show that replacing one tax with another leaves consumers in a similarly negative position,” Mr McKibbin said.

“There are more and more unintended consequences of the proposed reforms emerging and REINSW is preparing a formal response to the consultation.

“For instance, there has been no deep dive as to what a property tax might mean for investors. 

“The REINSW is investigating this, with the potential impacts on yields to be balanced against any claimable portions of an annual tax.”

SMATS Group’s Mr Douglas said a more equitable proposal would be for state governments to reassess land transfer fees to be more realistic.

“The question shouldn’t be how do we replace revenue, it should be what is fair and reasonable as a cost to protect the ideal of home ownership, allow sensible volume of transactions, stimulate the construction industry and provide steady increase in housing stock?

“Ironically, I note that when NSW and Victoria were collecting far more in stamp duty than they imagined there was no talk of reduction or refund, so why then should we be taking about increase just because there revenues have declined – largely because of the fact they have outpriced the transactions and slowed the activity volume down themselves.”

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