General

The NSW Government recently consulted the public on a property tax model that could make home ownership more achievable in NSW by giving home buyers the choice to eliminate stamp duty (and land tax, where applicable) in favour of a new, smaller annual property tax.

Stamp duty is one of the biggest financial barriers to home ownership. For more than 150 years, stamp duty has been a source of important revenue to pay for public services, but it comes at a significant economic cost to the people of NSW, stifling mobility and freedom, and delaying home ownership.

As the next generation of home buyers seek to enter the property market, NSW needs a modern tax system that supports home ownership, greater prosperity, and reflects the changing needs of the people of our state.

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 seeking a lifestyle change to save what is needed to purchase their next home.

The proposal would further simplify the property tax system by eliminating land tax (where relevant) for those who opt-in to the new system. Land tax is payable on commercial and some investment properties (but not on the family home), adding complexity to the tax system, and placing a large tax burden on a small number of taxpayers. 

A simpler, fairer tax system will remove barriers to home ownership, and boost our state’s productive capacity, delivering greater prosperity for current and future generations.

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

We have developed a proposal to reform property tax in NSW built around choice: the choice between paying stamp duty at the time of purchase (and ongoing land tax where applicable), or eliminating the upfront tax and paying a much smaller annual property tax instead.

Stamp duty on the average NSW home costs home buyers tens of thousands of dollars, so removing upfront stamp duty means removing a significant barrier to home ownership.

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.

For example, the proposal would enable people to buy, sell and move more often if they want to; live in the home that matches their needs; and move closer to work or study, supporting greater productivity in our people and better use of resources in every community across the state.

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 one).

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 upfront barrier to buying a home.

As the next generation of home buyers enter the market, the time has come to consider 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.

Because it is not uniformly applied, land tax creates complexity and skews property investment decisions 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 the proposed changes have been designed so that, over the longer term, the property tax would collect the same amount of revenue as stamp duty and land tax.

If you’re happy with your situation and have no plans to buy, nothing would change. There is no double taxation. You will not be required to pay the property tax.

If you are planning on buying a new home, this proposal would give you a choice between paying a large stamp duty bill upfront or paying a smaller annual property tax instead. You can choose the option that best suits your lifestyle and financial circumstances.

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 think tanks 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.

The proposed property tax would replace both stamp duty and land tax. To reflect this, 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.

Some farmers already have to pay stamp duty, which can be a big financial barrier to owning a farm.  The NSW Government would like to give those farmers the choice to pay either the upfront cost stamp duty or spread out the cost over time with an annual property tax. Under the proposed changes, you could choose the option that best suits you and your family’s needs.

Farmers would pay a lower rate of property tax than investors and commercial property owners.

Farming families who want to transfer their properties to the next generation are currently exempt from paying stamp duty.  If you have already paid stamp duty on your farm or you are transferring it to the next generation, nothing would change. There is no double taxation.

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, unless you are buying a property, there would be no change.

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.

No. The NSW Government recently consulted the public on the proposed property tax reform and is now considering all feedback received throughout the consultation period to help refine the proposal to ensure that it delivers the most benefit for the people of NSW. 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 a number of reasons, including:

  1. To provide NSW buyers a choice based on what suits their needs, lifestyle and plans for the future.
  2. To ensure those who have planned their financial affairs around the existing system are not disadvantaged by any sudden change.
  3. To ease the NSW economy through a significant process of economic transformation, while avoiding the disruption that would be caused by immediate change.

Under our proposed model, you would have the choice to pay either the upfront cost of stamp duty or the ongoing annual property tax. Once a property has been opted into the annual property tax system, future buyers of that property would continue to pay the property tax – they would not have the option to pay stamp duty.

This approach reflects the objective of transitioning our State away from a 150 year old tax system that is widely recognized to stifle economic growth and household prosperity, and into a new system that better supports our modern economy and the needs of the people of NSW – but doing so in a way that is fair and equitable to everyone in the State.

Gradually transitioning to the new system would  enable NSW to realise the full social and economic benefits of the reforms and to responsibly move NSW from a bad tax towards a better system.

The gradual transition also means choice would continue to be available to prospective property buyers for decades. It is estimated that buyers would still be able to choose between stamp duty and the property tax for around 50% of residential properties in 20 years’ time, with the compete transition to the new system taking around 50 years.

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 proposed changes are designed so that the property tax would collect the same amount of revenue over time as stamp duty and land tax, and we are looking at options to keep it that way, including legislation to lock in the rates.    

The NSW Government recently consulted the public on the proposed property tax reform and 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 Government is now considering all feedback received throughout the consultation period to help refine the proposal to ensure that it delivers the most benefit for the people of NSW.

The proposed changes are designed so that property tax would collect the same amount of revenue over time as stamp duty and land tax.

The NSW Government recently consulted the public on the proposed property tax reform and 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 Government is now considering all feedback received throughout the consultation period to help refine the proposal to ensure that it delivers the most benefit for the people of NSW.

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

A consultation phase was held from 17 November 2020 to 15 March 2021. We asked the people of NSW to share their thoughts and feedback on the proposal, to help shape the future of the NSW property tax system. Consultation was focussed on several key topics, including the possible policy framework

During consultation, thousands of people across NSW provided their valuable insights about the proposal and what it could mean for those wanting to access the housing market. We are now preparing a findings report to provide you with an overview of the feedback received about the property tax proposal during the consultation period.​ It is intended that this report will be released shortly on www.treasury.nsw.gov.au/property-tax-proposal.

We want to thank all who contributed to shaping the future of the NSW property tax system.​

Consultation on the proposed property tax reform recently closed. We are now analysing and considering all feedback received throughout this period to help refine the policy proposal to ensure that it delivers the most benefit for the people of NSW. Further detail and updates will be provided shortly.

Last updated: 26/04/2021