The NSW government has continued it’s plan for property tax reform. In June it has released its progress paper which stipulates the changes proposed to be made in the next financial year.
The plans look to the complete removal of the transfer duty (stamp duty) by 2050. Through the opt-in of buyers of a property to either select the current transfer duty or an ongoing property tax based on the land value of the property. Once changed it could not be changed back.
The idea behind this is to increase the declining homeownership rate. By decreasing the barriers of entry for first home owners, and increasing mobility for upsizers and downsizers.
From the progress report, the property tax is likely to be based on the following:
- Residential – Owner Occupied- Fixed Fee of $400 + 0.3% of land value
- Residential – Investor- Fixed Fee of $1500 + 1.1% of land value
As property prices have soared in the past 30 years. Transfer duty has increased disproportionately more than incomes. This reform should be a welcome change for first home buyers. Investors should be able to claim the property tax against their taxable income as part of continued negative gearing.
If buyers choose not to opt-in for the property tax, they will be at a disadvantage over other buyers who do not have to consider transfer duty as an upfront cos. As a consequence, they could potentially assign more borrowed money towards the asset rather than the transfer duty.
Short Term Impact on Prices
This could potentially increase prices as buyers know that the property tax is correlated with the land value. Which is determined by the valuer-general and not the hubris at an auction as the transfer duty is determined.
It’s easy to speculate possible scenarios where vendors and buyers interact. With this new tax reform but the exact ramifications will not be seen until it has become enacted.
With the aims of the NSW government in mind, we’d expect to see a shift in the balance between owner occupiers and investors in favour of owner occupiers.