A few months ago, we highlighted Stamp Duty in Australia had doubled in the last 8 years, which is why the recent NSW Treasurer’s announcement of overhauling the system is welcome news.

Stamp Duty is the tax paid on any property purchase. Currently based on a proportion of a transaction’s value and in Australia, it is charged on a sliding scale; property buyers pay a higher percentage as the property price increases.

However, from July next year, the seven price brackets that determine how much stamp duty homebuyers pay will be adjusted to the Consumer Price Index (CPI).

These reforms are expected to reduce the average amount of stamp duty on property purchases by $500 by 2021.

NSW Treasurer Dominic Perrottet said the reform was the most significant in a generation with the current system having remained largely unchanged for over 30 years.

“We haven’t seen any significant action on Stamp Duty brackets since 1986 when the median house price in Sydney was $100,000, now it has climbed to $1 million,” Mr Perrottet said.

According to the Government, over the past 15 years (2002-2017), bracket creep has resulted in the average rate of Stamp Duty payable increasing from 3.37 per cent to 4.05 per cent.

If Stamp Duty brackets had been indexed to CPI 15 years ago the amount payable on a $500,000 home would today be around $2,000 lower (an 11.0 per cent tax cut), while the Stamp Duty payable on a $1.5 million home would be around $6,400 lower (a 9.4 per cent tax cut).

Tim Reardon, Housing Industry Association’s Principal Economist says the indexation of Stamp Duty is a step forward in reducing the taxation imposts on housing. He believes state governments have become increasingly reliant on Stamp Duty from housing as a main source of revenue.

“Around $1 in every $5 of state government revenue comes from Stamp Duty on houses,” he says. “Stamp duty is an inefficient tax and it has a disproportionately high impact on households that are vulnerable due to changes in their circumstances including employment, health or other family related matters.

Mr Reardon believes a better long-term solution would be to phase out Stamp Duty altogether and replace it with a form of revenue that doesn’t punish buyers for wishing to pursue their dream of owning a home.

Property Council NSW Executive Director Jane Fitzgerald says reducing what purchasers have to pay in tax will make buying a home that little bit easier.

“The indexation of rates will give buyers modest savings initially but will, over time, ensure no repeat of the current situation where stamp duty is a barrier for first home buyers, up sizers and right sizers,” she says.

However, Tim McKibbin, CEO Real Estate Institute NSW said the State Government’s intention to index Stamp Duty by reference to the Consumer Price Index (CPI) starting from 1 July 2019 without adjusting the tax brackets is a real sleight of hand.

He thought if the Government is serious about Stamp Duty reform it must adjust the brackets to reflect today’s median house price and then index it from there.

Stamp duty brackets: what they are and what they should be according to Real Estate Institute NSW

If you want to know more about Stamp Duty or are interested in selling or buying a property, get in touch. We are one of Newcastle’s longest established real estate offices and our innovative team is constantly achieving great results for our clients.

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