NSW, VIC to abolish stamp duty

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Victoria backs tax reform, stamp duty push

 

The sky is falling!!!!

 

From a societal point of view it is very hard to argue against the merit of land land tax replacing stamp duty.

The goverment tax take will be smoothed and more predictable (aka subscription model), any changes to the taxation model will be more pronounced and immediate, land will be reallocated to more efficent use (discourage the single pensioner living alone on that prime inner city develpment site).

I dont believe there will be material change in house prices either. A prospective home owner is still going to have to assess the properties affordability taking into account the new tax rather than simply adding the stamp onto the mortgage, furthermore the reallocation of land to efficent use will free up supply that was previously bogged by high transaction costs and poor incentives (as in the pensioner example).

As a tenant I dont buy the argument rents will increase as I am sure most landlords are already letting thier properties for the most they can, and for landlords I assume this would be a tax deductable expense.

The implementation would be the key, and one would assume regognition for previously paid stamp duty would apply. ie a matrix determining land tax rebate for stamp duty paid in the last several years for example.

The land tax could extend into the welfare system whereby a person receiving a government benefit could also apply for a land tax rebate to a maxium of $X to subsidise thier cost of living.

As an aside I am all for a GST increase and broadening of the base, especially if it is used to reduced income tax rates. Afterall, even drug dealers pay GST

 

Property sales hit a 30 year low

State governments need to get land tax in quick smart.

 

Defying the 'resident galah': Pallas won't ruffle feathers on tax reform

 

This by Judith Sloan today: Boiled frogs would urge against this incremental land tax option

An incremental land tax option

Btw all these policy wonks, property industry insiders and state politicians advocating for land tax to replace stamp duty - has anyone bothered to ask property owners what they want?

 

Who cares what they want!

They will probably want no tax and no stamp duty.

 

I would be happy with a fair and equitable "either/or" stamp duty/land tax outcome for property taxes for existing owners... but not both!

As in, a buyer who paid hefty stamp duty in say the last 1-10 years, should not be then charged annualised land tax at the full rate, moving forward in perpetuity. That's not fair.

In fact, maybe a phased approach is fairer altogether. So, states have a date (e.g. 01.01.21 for example), ALL properties transacted on or after that date pay annualised land tax, but all properties transacted before it, pay only stamp duty (and never ever pay a cent in annualised land tax, thereafter).

The outcome to this would likely be a mixed bag. I would wager you would see:

1) budget buyers (downsizers, 1dt home buyers in the sub-500k metro / sub-300k regional) markets might prefer to wait until after the land tax start date to buy. Rationale: every cent counts and a 300k - 500k purchase in most states chunks on $6k - $15k in up front stamp duty. That is a BIG eat into ones first home deposit. Plus these folks may know that they will upgrade in 5-10 years anyway so their stamp duty could be considered a waste because they aren't getting as much longevity out of their 6-15k paid; if they only intend to hold the property for 5 years or so. Investors who are short to medium term hold (dare I call them flippers, though flipping is hard to do well in Australia!); might hold off until land tax kicks in if it means no stamp duty is paid up front. If you had say a 2-year 'hold' window (e.g. buy, reno, hold as a rental for another year after reno is done...); it could be quite lucrative. You are by no means a flipper as CGT-definitions would try to pigeon-hole you; but you would benefit from much lower land tax and 50% Cgt discount both entitled to you, when you sell. This could make shorter term value-add investing a bit more palatable?

2) Upgraders, downsizers, and longer-term-hold-intention buyers (those buying with the intent to hold for say 15-20 years+) would perhaps consider buying before the change to annualised land tax kicks in. E.g. the 500k - 1500k price bracket buyers. Yes it is a massive whack of tax up front but if they are guaranteed to NEVER have to pay a cent in land tax each year thereafter (providing the land value itself remains under a generous threshold for these transaction-types...), then these buyers may prefer this. Possibly in this group could be investor buy-and-(long term!)-hold investors too. If they dollar-cost-average the total taxes paid under a stamp duty versus land tax over say a 20 year hold, then this option could be better for them.

What I don't like about land tax is that each year it can be reset, Adjusted higher in line with inflation or (sometimes!) OUTPACED over inflation. I hate it how the state's will have that lever to pull. As much as stamp duty sucks in general, at least when you pay it that one time as a lump sum, it is paid and you lock in the diminishing value of the currency at that time, for all of the possibly decades of holding years ahead.

It's sorta like a mortgage really. Whilst of course the interest rate you pay can and does go up and down over the 30 year mortgage term; what is fixed in place is the actual mortgage amount. That can't increase (unless you re-fi and actively take on more debt/release equity to take more debt on against).

 

Also - where up front stamp duty for investment properties is NOT tax deductible, I'm guessing for those that already pay land tax in the various states and territories; are annualised land tax payments in fact deductible expenses against other income? (Such as local county taxes/council rates are?)

 

The problem will be the added complexity, and encourage 'hoarding' of a property to avoid ever having to pay land tax should one move.

At the end of the day tax reform will be whatever benefits the state, and having the ability to increase rates faster than inflation is an unfortunate probability.

I do agree that recognition needs to be made for people who have paid stamp duty recently, but it should only extend to a fixed period (ie 10 years) on a sliding scale.
To exempt someone indefinately misses the point of the tax in the first place.

 

Payroll tax, stamp duty reform hopes dashed by federal government

https://www.theage.com.au/politics/...ed-by-federal-government-20200604-p54zie.html

 

You can't completely grandfather existing property owners, as they'll never want to sell, which goes against the whole purpose of making the change. Having said that, there may need to be some form of grandfathering for retirees, as they have no capacity to pay for a new tax.

As you say, some kind of recognition of stamp duty already paid must be the go. I would think existing property owners will need a many many years of zero or very low land tax, otherwise it will destroy household budgets, as it will simply be a brand new, additional tax for households who did not budget for it when they bought their home. It would also be politically impossible (and unfair) to hit homeowners with a brand new tax, when they've already paid a big whack of stamp duty in the past.

 

Around additional 4K in land tax for each househould (no exemptions), Don't thinks it's going to happen

 

$4k sounds like rubbish to me. I mean Land tax is supposed to be far more "efficient" and bring economic benefits with it. There's already big carve outs under the current stamp duty system, ie first home buyers and new builds, not to mention the various grants available now. I bet these haven't been factored in with that analysis.

 

Thanks for sharing that AGE/SMH article; looks like any removal of stamp duty and replacement with land tax won't be happening any time soon in these two states.

Either way; I guess it gives buyers a bit more certainly. By the Fed Gov pouring water over this so quickly, I bet their intention was to dispel this possibility so as to keep property transactions moving (As much as is possible..) for the recessionary quarters ahead of us.

 

Yes you can. People have been holding onto pre-CGT (20 Sep 1985) assets for 35 years so as not to incur that.

And don't talk to me about retirees having no capacity to pay tax. The most wealthy generational cohort in the country at the moment is retirees. Who are we going to tax otherwise? Poor people with no assets and no employment?

 

I don't see how stamp duty reform can happen if it means an extra land tax for all property owners during the middle of the covid-19 crisis. A lot of people are struggling to get by as-is, an additional tax they haven't budgeted for is certainly not something they can afford.

 

1. I didn't mean "you can't" as in it isn't possible. I'm merely stating my opinion, that it may distort the market if you completely grandfather all existing property owners. The idea here is to remove barriers to turnover of property, not ensure that everyone will be keen to hang onto their existing homes forever, to avoid paying a new tax.

2. Wealthy retirees are the exception, not the norm. Most retired aussies get by on Age Pension plus a little bit in savings. In general, I agree that fully self-funded retirees should pay more tax than they do.