Could There Be Changes Coming To Stamp Duty?

Finance Jun 9, 2020

5 min read

blue sky over houses stamp duty changes
blue sky over houses stamp duty changes
There is a lot of talk in the media at the moment about stamp duty and tax reform. Each state has a slightly different way of taxing property including stamp duty through to a variety of land taxes. Each tax is applied in varying ways depending upon the category the property and/or owner falls within i.e. for construction, first home buyers, owner occupied, foreign and domestic investors and unoccupied or vacant land.


What is the current stamp duty situation in Victoria?

Here in Victoria stamp duty makes up around 10% of our state revenue which was projected to equate to and estimated $6B in 2020. On a property worth $1,000,000 an upgrader who was Australian and planned to live in the property would pay $55,000. A first home buyer may pay less depending on the property price and an overseas investor would pay most of all.

It can be very expensive and if a family had to move around for work quite often, then the implication is that they would be paying a lot of money each time they buy a property. It generally can’t be capitalised into the mortgage either, it must be paid for out of the deposit saved.


What implications does paying stamp duty have now?

Many believe stamp duty puts the breaks on for a lot of people who would otherwise transact. For example first home buyers, downsizers and those looking to move closer to their place of work.

If stamp duty were removed there’s the possibility that this barrier would be removed. That said, if people have more to spend on a property there’s a good chance they will which could then go on to inflate already high property prices. Which is a likely possibility when noting that on the introduction of the first $7,000 first home owner grant in Victoria the average price paid by a first home owner thereafter increased by around the $7,000 mark.


What alternatives could we be looking at instead of a one-off tax?

Instead of stamp duty (for owner occupied properties) many experts and commentators are talking about the possibility of a land tax instead. A land tax would be an annual tax payable based on the value of the land.

Buyers would get a choice. They could opt for the one-off upfront cost of stamp duty or they could choose to pay an annual tax of a few thousand dollars instead. The land tax would theoretically cost less if buyers were to live in the house for less than 10 years. After which time the upfront stamp duty would probably have been the lower cost alternative.

Commentators believe this could save a lot of money over the long term for buyers, particularly those that are required to move often due to the nature of their occupations. If the reform was adopted quickly, the federal government has suggested offering anyone who has paid stamp duty in the last five years a credit for the amount already paid.


What does Entourage think?

Entourage Property Buyer’s Agent Antoinette Sagaria believes a credit system could work. For example, say you buy a house for $1,000,000 and you pay $55,000 in stamp duty then if you upgrade and buy a $2,000,000 property in ten years’ time you get a credit for the $55,000 and only pay stamp duty on the extra $1 million.

The result being you only pay stamp duty if you continue to upgrade through the property market. Downsizers may then be given the option of an ongoing land tax.

Then again, maybe nothing needs to change. People are still transacting in the market, despite COVID. The idea of grants to encourage construction of new dwellings and boosted first home buyer grants may instead be the way to go for market stimulus rather than the removal of taxation. We also ask, is a tax ever really ‘removed’ or is it simply replaced. Billions of dollars of government revenue won’t ever simply be abolished but will be certain to reappear in another guise.