NSW to Phase out Stamp Duty

Discussion in 'Property Market Economics' started by skater, 17th Nov, 2020.

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  1. rksing

    rksing Well-Known Member

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    Say you currently own IPs in NSW, but valued below the landtax threshold. Then if this property tax gets up, and you choose the this option for your next IP, instead of stamp duty. Would I be right in assuming this purpose wont be counted towards your land tax threshold?
     
  2. Just_A_Name

    Just_A_Name Well-Known Member

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    They are equally bad policies, period. The existing one is milking the cows one time but big time, the proposing one is milking the cows yearly until the end of the cows. At the end of the day, governments just try to get more milk without getting kicks by the cows.

    If you are owning properties in Australia, you are already paying tax on land value (Council rates). Not to mentions others including GST, income tax, CGT, corporate taxes and fuel taxes. If you are a smoker or drinking for fun, Excise taxes is there for your poor soul.

    I never understand that why I need to pay for stamp duty in the first place. It just looks like a ancient law that nobody remember why it exists in the first place. At the moment, all the so-called reasons to justify why property tax is a better idea are simply excuses. If they really care about first-home buyers or encouraging people to move around, governments should just expire the entire stamp duty for good, rather than replacing it with a more efficiently cow-milking machine.

    I love this country and I don't mind doing my duty to support it, but It don't mean that someone can treat me like a mindless idiot.
     
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  3. C-mac

    C-mac Well-Known Member

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    ^^^^ This.


    Couldn't have outlined more succinctly, the many and often RECURRING ANNUAL taxes one pays in this country to invest in most real estate types/classes.

    I've become quite bearish on Australian real estate strategies (particularly Residential; less-so commercial) that don't include some measure of manufacturing capital growth and/or cash flow. It simply doesn't stack up. One has to pay too many taxes, too often, take on too much debt, for too low a cash-flow returns and too questionable a capital growth prospect (for most locations/property types, that is).

    What I'm doing in the USA isn't perfect but to me it is leagues ahead where I was at when I only focused on AU. From the tax perspective the two just don't compare. Many states (including the ones I focus on) have ZERO up front stamp duty. Doesn't exist. Councils (counties) within those states do have rates just like ours do, BUT again; you pick your focus areas and these are often a lot less (or at worst, roughly the same) as your typical council rates in most average councils in Aus. Some states have NO recurring annualised land tax or property tax whatsoever; and those that do (save for the ghastly extremities that one wouldn't touch with a barge pole anyway, for investing, such as CA IL NY CO etc...); will often have thresholds much higher than the average investor who might own a small portfolio or median-priced investment properties, within that state).

    Maintenance costs are comparable to here. Gross yield %'s blow the barn doors off of what one would see in most of this country. Buy-in prices are low in some decent B and C grade cities/suburbs; and if you pick well, property mgmt teams are good if you know where to find the hard working teams. All with less recurring taxes.

    CGT is payable upon realising profit at point of sale. Same sort of discounts apply as to Aus if you hold property 12+ months. There are even things such as 1031-Exchange laws that allow you to sell then buy in fairly fast succession to kick the CGT can down the road by avoiding a CGT event in between those two transactions (keeping more of your working capital into the newer deal/deals).

    In NSW the annual land tax will help investors who flip or value-add then sell in a few years of ownership time. Still won't solve for the CGT discount only kicking in at 12+ months of continuous ownership. But for flippers who do larger scale renovations/additions this could be lucrative as a project including planning, DA, execution, staging for sale, ale campaign, and 30+ day settlement wait time, would be a 12+ month timeline anyways).

    But yes, as for good old buy and hold with no value add in Aus, despite money being dirt cheap I'm still not convinced there is much upside for this. In the US, different story.
     
    Last edited: 20th Nov, 2020
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Who knows, That was the general idea. Its a one page media announcement. NOTHING has been detailed and it will be subject to consultation. I imagine Commonwealth Treasury will also have meaningful input. There is an inflationary potential and it could be harmful to first home buyers as much as its a help. eg They will be priced out of renovation gems which are made affordable by flippers and this could push prices. But they it may help then with a first purchase to get more as buyers. Also pushing prices up ? The duty saving could translate into higher property prices. The old supply demand thing.

    Its a good discussion to initiate as they say duty and land taxes have been set in stone a long time. It could lead to national reform around property taxation. But I have doubts that any govt will progress this unless it has a revenue neutral or revenue increase at its core. For all the shiny benefits there will be others who pay. Thats always a feature of tax reform.

    I can see unions publically smashing the idea if any revenue hit occurs to hospitals, schools etc. Unions would love a cause to push the labour agenda ahead of the state elections
     
  5. Tillie

    Tillie Well-Known Member

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    This is really interesting proposal. Has anyone came across any timelines when this would be implemented?
     
  6. SmileSydney

    SmileSydney Well-Known Member

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    I’d like to know if this will only apply to resi and not commercial.

    I could see some interesting effects in the commercial market especially if an existing lease requires the tenant to pay land tax i.e. owner opts for land tax over stamp duty and passes this onto tenant.
     
  7. Tenex

    Tenex Well-Known Member

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    The reality is that stamp duty was always a bad tax that the government was used to charge and always formed part of government's budget.

    The fact that they will replace it with landtax, depending on what it will ultimately look like, is not exactly what we were looking for but still better than having stamp duty.

    This will help 1st home buyers get in

    It will help build more homes and stimulate the building industry.

    The reality is NSW pays most taxes in the country and for a very long time, along with Victoria, has piggy backed the economy however always gets short changed by the federal government.
     
  8. Someguy

    Someguy Well-Known Member

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    I can see the endgame of this. Land tax for all and can finally force those boomers off developable land but taxing the hell out of.

    The confusing part of it is why is this new tax replacing stamp duty being referred to as ‘land tax’? Stamp duty is based off a purchase price, land +improvements, land tax is based off the unimproved land value.
     
  9. Trainee

    Trainee Well-Known Member

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    Because the property tax will be based on unimproved land value.

    interesting point. Currently, does rezoning increase land values used for land tax calculations?
     
  10. unicorntears

    unicorntears Well-Known Member

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    I suspect the new property tax is also meant to discourage people from hoarding property? If over a long term period, your property tax obligations double or triple (and you're not eligible for any concessions like the current land tax threshold), you'd be tempted to sell one or two?
     
  11. skater

    skater Well-Known Member

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    Please explain. What do you consider is a property hoarder? I don't know any property hoarders, but I do know lots of people who invest in multiple properties.
     
  12. balwoges

    balwoges Well-Known Member

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    Unfortunate choice of words, however we get it ... poster is a newbie, so be kind to him/her.
     
  13. skater

    skater Well-Known Member

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    Not trying to be unkind, but need to question beliefs for people to learn. I've only heard the term 'property hoarder' from those who don't have property.
     
  14. MB18

    MB18 Well-Known Member

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    I think by 'hoarder' the poster refers to inefficient property allocation ie the single retiree holding onto that prime intercity development site that impedes development for the greater community.
    Hold onto it if your can afford it, otherwise sell and encourage more efficient use. It's one of the reasons I see land tax as a pro over stamp duty.
     
  15. skater

    skater Well-Known Member

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    If that prime development site is the retiree's PPOR, why shouldn't they hold onto it? Someone who has bought & paid for their home should not be penalised. You get a finite amount of money in your lifetime, you can decide what to do with it. You can save and buy an expensive PPOR while someone else in the same situation can choose to rent & blow the lot, and at retirement have the Government give them rent assistance. The one who chose to buy their home should be allowed to enjoy the same home in retirement.
     
  16. MB18

    MB18 Well-Known Member

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    I dont disagree but I consider the land tax an incentive to better allocate land (which is also finite) rather than being a penatly.
    If you can afford to hold on then all is well and good, if it becomes too to hard to justify then consider selling and the land can be reallocated.

    It might sound unfair on the individual (and probably is) but the policy is designed to serve the interests of the population as a whole, rather than protecting individual sentiment.
     
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  17. skater

    skater Well-Known Member

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    At this stage, there is no land tax on a PPOR. And as far as the population as a whole is concerned, well, we all die, no two ways around that one, so they can get their grubby hands on it when that happens. :p
     
  18. unicorntears

    unicorntears Well-Known Member

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    I'm just playing devil's advocate and suggesting the new tax may disincentivise large (and perhaps low value) property portfolios.

    An example: In NSW currently, 7 x properties with land value of $100,000 each would fall under the land tax threshold, but 2 x properties with land value of $400,000 each would not. The new tax may encourage more efficient property allocation and investment, not based on thresholds and concesssions.
     
  19. skater

    skater Well-Known Member

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    LOL! You've just described what used to be my portfolio.

    I'm not sure you're right on that. I think it all depends on the investor. In my own circumstances, we were on very low incomes, so the ONLY properties we could afford were low value, and just kept buying as soon as we could get another. We understood early on, that the only way to retire off of them, was to have a LOT of them, so that's what we did. It wasn't hoarding, it was investing with a clear goal in mind. Have now sold a heap to retire, but still hold double figures, although they are not all low value anymore. Buying in different States also helps with Land Tax.

    The other thing to consider is that if you are holding onto them for a good length of time, you'll probably be better off with the existing lump sum method, which will mean no Land Tax on a few low value properties, but if you are flipping, you're going to be better off with the new system.
     
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  20. unicorntears

    unicorntears Well-Known Member

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    I'm a millennial who owns multiple properties. I also believe much of my generation are being priced out of the property market, most particularly in Sydney. (Yeah, ya caught me!) I would welcome the removal of stamp duty altogether. However, I suspect property prices would just rise in line with the difference. The property tax, once widespread enough, also seems to be an attempt at a wealth tax, to be honest. It'll be at least a generation or two until it is that widespread. I wouldn't want to see anyone forced from their PPOR due to perpetually increasing property taxes. However, as an economist, it probably would encourage a more efficient allocation of land, as suggested above.
     
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