General

The NSW Government is consulting on a property tax model that could make home ownership more achievable in NSW by giving home buyers the choice to pay either stamp duty and land tax (where applicable) or a new annual property tax.

Stamp duty is one of the biggest financial barriers to home ownership and is no longer serving the people or economy of NSW. As the next generation of home buyers enter the market, we need a modern system that reflects the world we live in now.

If implemented, the proposed reform could give home buyers the freedom to choose between paying stamp duty upfront or paying a much smaller annual property tax, when they buy their next home.

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.

Land tax places a large tax burden on a small number of taxpayers. If implemented, these proposed changes could give property buyers the freedom to choose to pay either stamp duty and land tax (where applicable) or an annual property tax. 

The NSW Government wants to make home ownership more achievable in NSW.

We have developed a proposal to reform property tax in NSW. Key to this proposal is choice. Choice between paying stamp duty upfront and land tax (where applicable) or paying a much smaller annual property tax when you purchase a home. This would remove a barrier to home ownership.  

It is important to note that we are now entering a consultation process and we want to hear your view on how we can make this better.

The proposed changes would provide a critical economic boost, not only injecting much-needed stimulus (approximately $11 billion in the first four years) in the current downturn, but also delivering the most significant reform available right now to strengthen our state’s economy and increase our prosperity over the long term.

Replacing a large upfront tax like stamp duty with a much smaller annual property tax, would produce a shortfall in revenue for NSW in the short to medium-term.

The proposed changes would be self-funded in the long term. The transition would not leave a funding gap for future generations and would not impact Government services.

To manage the transition, house price thresholds would be set to limit the number of properties eligible upfront (80% of homes would be eligible from day 1).

Stamp duty was introduced to NSW in 1865 when house prices were lower relative to income and moving around regularly was rare. The way we live, work and move has changed. In recent decades stamp duty payments have risen faster than home prices or incomes. Stamp duty is now a major up-front barrier to buying a home.

As the next generation of home buyers enter the market, the time has come to look at changes to the system so that it can better reflect the world we live in now.

Land tax is an annual tax paid by investors and commercial property owners, based on the value of the land they own above a certain threshold. Due to the many exemptions and the high tax-free threshold, the current system of land tax places a large tax burden on a small number of taxpayers.

Under the land tax system in NSW, not all land is taxed equally. This means that investment decisions about what land to buy may be based on the tax rate rather than the quality or location of the land. As a result, land in NSW is not always put to its most productive use.

No. The proposed property tax is not a tax grab. In the first four years alone, the reform would cost the Government $11 billion. And over the longer term, the property tax would be revenue neutral, collecting the same amount of revenue as stamp duty and land tax.

This proposal would provide a choice between paying a large stamp duty bill upfront or paying a smaller annual property tax when you buy a home.

There would be no change, if this proposal is implemented, unless you are buying a property. If you have already paid stamp duty on your existing property, you will not be subject to property tax. There is no double taxation.

There have been various reports which have recommended this reform.

Most recently, the 2020 NSW Review of Federal Financial Relations, chaired by David Thodey, recommended that stamp duty be replaced with a broad-based land tax like the property tax proposed as part of these reforms. For more information about this important review go to: NSW Review of Federal Financial Relations.

Some of the other major reviews that have recommended removing stamp duty and replacing it with a broad-based tax on land include:

A variety of thinktanks have also recommended replacement of stamp duty with a broad-based land tax:

  • Centre for Independent Studies (2008)
  • McKell Institute (2016)
  • Grattan Institute (2018)
  • Australia Institute (2020)

What does this mean for me?

The deposit and other upfront costs of purchasing a home are usually the main barriers for first home buyers.

The proposed reform would mean all purchasers could avoid the upfront cost of stamp duty, by choosing the property tax. For first homebuyers, who already benefit from stamp duty concessions, the proposed reform includes an option to abolish first home buyer stamp duty exemptions and concessions, but provide short-term financial support via a cash grant. This would boost homeownership and support the economic recovery from COVID-19.

Should this reform be implemented, existing stamp duty concessions for first home buyers could be replaced with a grant of up to $25,000. Like all other buyers, first home buyers could then choose between an upfront stamp duty or an annual property tax.

You could use the grant to pay stamp duty on your property. Or you could choose the annual property tax, pay no stamp duty, and spend the grant as you wish.

In normal times the maximum first home buyer duty exemption is worth $24,682, which is a full exemption from duty on a $650,000 home. Lower concessions are available for homes up to $800,000. During 2020-21, these concessions have temporarily been increased.

Should this reform be implemented, you would be given the choice to pay either an upfront stamp duty or an annual property tax. By choosing the option that suits your lifestyle and plans for the future, you would have the potential to save money and have greater flexibility. If implemented, the Government would provide you with information to be able to make the choice that is right for you.

Unless you are buying a property, and should this proposal be implemented, there would be no change. If you have already paid stamp duty on your existing property, you will not be subject to the annual property tax. There is no double taxation.

If you are planning to buy property, you would be given the choice to pay either an upfront stamp duty or an annual property tax. By choosing the option that suits your lifestyle and plans for the future, you would have the potential to save money and have greater flexibility.

If implemented, the Government would provide you with information to be able to make the choice that is right for you.

Should this reform be implemented and if you are looking to purchase a commercial property, you would be given the choice to pay stamp duty and land tax or an annual property tax.

Property tax would combine stamp duty and land tax into one. Under the proposal, commercial property owners would pay a higher property tax rate than residential owner-occupiers.

If you are a business owner, this proposed property tax could provide opportunities to grow your business with the freedom to move and expand more frequently. You may also be able to benefit from higher income tax deductions.

Unless you are buying a property, and should this proposal be implemented, there would be no change. If you have already paid stamp duty on your existing property, you will not be subject to the annual property tax. There is no double taxation.

The proposed changes centre on those NSW residents who plan on buying a property. The proposed changes would not impact renters.

Protections would apply so that the property tax does not result in rent increases without a tenant’s agreement.

Should this reform be implemented, unless you are buying a property, there would be no change.

If you have already paid stamp duty on your existing property, you will not be subject to the annual property tax. There is no double taxation.

Should this reform be implemented, the proposed changes would provide a choice for those who are buying a property. There would be no change for the seller.

As the Government considers tax reform options, some potential buyers might consider delaying their purchases because they would like to opt-in to the property tax. To address this potential disruption to the property market, the Government is considering providing a limited window for retrospective opt-in to the annual property tax.

People who purchase in the months leading up to the new property tax legislation could be permitted to opt-in to the property tax and obtain a refund of the stamp duty they had previously paid. Making this option available for a limited period could ensure there are ‘no regrets’ for people who proceed with a property purchase in the months before the legislation commences.

No. Unless you are buying a property, and should this proposal be implemented, there would be no change. If you have already paid stamp duty on your existing property, you will not be subject to annual property tax. There is no double taxation.

We are currently consulting on the proposed changes to help inform the design of the reform. We will provide updates as the thinking develops and confirm any intent to proceed at these points.

As such, buying decisions should not be based on the concepts in these proposed changes.

Choice

Should this reform be implemented, when you purchase a new home in the future, you would be given the choice to pay either an upfront stamp duty or an annual property tax. By choosing the option that suits your lifestyle and plans for the future, you would have the potential to save money and have greater flexibility.

In the current system, people pay stamp duty every time they purchase a property - no matter whether they plan to own it for one year or 20 years. This means that people who move more frequently pay stamp duty over and over again.

The reform proposal proposes a gradual transition, rather than an immediate change, for two reasons:

  1. To provide NSW buyers a choice based on what suits their needs, lifestyle and plans for the future.
  2. To ease the NSW economy through the process of eliminating stamp duty.

Once a property has been opted-in, the property would remain subject to the property tax for all subsequent future buyers of that property. Over time, more and more properties would become subject to the property tax, which is important for realising the full economic benefits of reform and for achieving fiscal sustainability. But even after twenty years the option to pay stamp duty would remain for more than half of all properties.

Property tax rates

No. The proposal has four different rates based on the property type – residential owner-occupied; residential investment; primary production and commercial.

Residential owner-occupiers and farmers would be taxed at a lower rate than investors, who would in turn pay a lower rate than commercial property owners.

Read more about rates here.

The proposal has four different rates based on the property type – (1) residential owner-occupied; (2) residential investment; (3) primary production and (4) non-residential.

It is proposed that for residential properties, the property tax would include a fixed charge and a variable rate applied to the unimproved land value of the property. It will be different to the existing rates of land tax.

It is proposed that for non-residential properties, the property tax would include a variable rate applied to the unimproved land value of the property. The unimproved land value is not the same as the price that you would pay on purchase.

You can find the unimproved land value of your property on the Valuer General website.

The reform will be revenue neutral, collecting the same amount of revenue over time as stamp duty and land tax.

The Government is seeking feedback on how best to ensure that payments stay in line with household incomes. One option would be a legislated cap on total revenue growth, an approach that is similar to how council rates are set.

The reform will be revenue neutral, collecting the same amount of revenue over time as stamp duty and land tax.

The Government is seeking feedback on how best to ensure that payments stay in line with household incomes. One option would be a legislated cap on total revenue growth, an approach that is similar to how council rates are set.

Thresholds

Should the reform go ahead, we would like to ensure that property tax is available to as many properties as possible, while ensuring that the scheme is affordable for the state of NSW. Over time, and as the NSW economy adjusts to the new property tax system, the number of properties that could choose the property tax would be increased.

Should the reform go ahead, we would like to ensure that the property tax is available to as many properties as possible, while ensuring that the scheme is affordable for the state of NSW. Over time, and as the NSW economy adjusts to the new property tax system, the number of properties would be adjusted. With the current proposed design, 90-95 per cent of non-residential transactions may be able to opt-in to property tax at the outset.

Key facts

Approximately 190,000.

There are more than 3 million properties in total in NSW.

Stamp duty is payable in NSW when you purchase the following:

  • Property, including a home or holiday home
  • An investment property
  • Vacant land or a farming property
  • Commercial or industrial properties
  • A business which includes land

Stamp duty is generally paid within three months of signing a contract for sale or transfer. It is typically calculated based on the property’s sale price or its current market value, whichever is higher.

You can find out more information about the current stamp duty on the Revenue NSW website.

Land tax is an annual tax on all property that you own, except your principal place of residence, that is above a certain value (also known as a ‘threshold’). Thresholds for land values change each year.

You can find out more information about the current land tax on the Revenue NSW website.
 

The Government expects to receive $7.9 billion in revenue from stamp duty in the financial year 2020-2021.

The Government expects to receive $4.6 billion in revenue from land tax in the financial year 2020-2021.

Public consultation

We want to hear from you about what this proposal would mean for you and your needs. We also want your feedback on what you think we could do to improve the proposal.

Have your say here.

Additional information is available in the public Consultation Paper.

The public consultation period will be open until 15 March 2021.

Finalisation of the policy will depend on the feedback the Government receives from the NSW community. Following the public consultation period, the policy will be developed in further detail and updates provided. We expect that to occur in the first half of 2021.

Last updated: 17/11/2020