Removing Stamp Duty is a terrible idea

I noticed that YIPmagazine is pushing the idea of removing stamp duty again......

Came across this article a few hours later and retweeted back to them why its a terrible idea and thought more than a few of you here might agree - dean collins on Twitter

 

The amount charged for stamp duty doesn't reflect the actual cost involved
It's no more than a cash cow for Govco
Plenty of places are "flipped" here already, and sure sales would increase if SD was lowered to a fair/reasonable cost

It would also make it easier to move closer to new job and reduce travel times

 

Purchase prices would just increase overnight because people would factor in not having to pay stamp duty.

Like happened with the FHOG ten years ago.

Wouldn't make it easier to live close to jobs etc.

 

Just going to preface this opinion with the fact I'm looking at it from an investor's point of view, not that of the state or economy.

I have property in the US where there is no stamp duty, but a property tax. It depends on the state, but in California it's between 1-1.5% depending on the county. The tax is payable on the value of the property on an annualised basis.

I used to think getting rid of stamp duty was a great idea, until I looked at the numbers and realised that, for example, on one of my $US280,000 purchases - if I assume roughly 3% growth (which is conservative) p.a. I was paying just over $US32,000 of property tax in just 10 years! Over 25 years it climbs to over $US100,000.

Given I plan to hold the property for years, it'll mean I'll pay almost 40% of the value of the original purchase in property tax if I decide to sell in 25 years. Would I rather have paid the Australian equivalent in stamp duty at the time of purchase on $US280,000? Easy answer I think.

Even worse (but much better in some respects), the example above was what I calculated at the time at conservative growth rates. The property in question is now worth about $US400k meaning it's grown faster for tax reasons than I had planned. This is obviously great for net wealth, but also supports the argument that you're better to pay stamp duty up front on today's dollars than pay 1% of a future value in future dollar values. I could have wiped my hands clean of the tax in 2012 at the $280,000 purchase price and been over $100,000 better off in 20 years time.

I would think that abolishing stamp duty would almost definitely result in the implementation of a broad based and ongoing property tax which will definitely not be beneficial for investors who plan to hold IPs for the long term.

Andrew

 

in NSW there is already stamp duty up to around 4% plus 1.60% land tax each year.

 

yep I know but the land tax comes in after a pretty reasonable threshold AND also doesn't apply to you PPOR.

you can bet if they get rid of stampduty......your land tax will shoot through the roof AND you will have to pay it every year AND you end up in a flipping situation like I posted about at - dean collins on Twitter

 

Can you post your response here rather than redirect us to twitter?

 

Threshold barely covers one Sydney IP.

I agree though, better to pay stamp duty once off than a property tax every year like the states.

 

Yes 4% once off would be better than say another 1% per year - if you hold longer than 4 years.

 

Is this a way to promote your twitter account?

Without stamps, what will pay for the roads and infrastructure.

Increase stamps as much as you need to for foreigners however, stamp duty is an easy retainer for our state governments

Cheers Ivan

 

I detest stamp duty for exactly this reason.

Just like the situation when transferring car registration based on the purchase price. What a rort.

But I would rather stick with what we have than go down the California road...

You can bet your bottom dollar (no pun intended) that if for example, NSW abolished stamp duty they would sneak in new taxes to match or even exceed what we were paying before.

 

I wonder how NZ reduced Stamp Duty and land tax to zero ....?
Was it GST?

 

@Dean Collins, nice try but you won't be getting a Follow from me.

Here's the article he retweeted (aka his response):

Flipping hell! New Zealand property frenzy as two houses sold five times in four days

 

Correct.

Still a very different tax structure. 1.6% applies only to the land value over the threshold, not the total value of the property and a PPoR is exempt. In the US, the 1-1.5% applies to the entire property value with no threshold and there is no PPoR exemption. The flip side of no exemption is that all expenses (including loan interest) are deductible against personal income on PPoRs, however there is no negative gearing if you are a US resident for tax purposes.

The threshold this year in NSW is $549,000. You could still conceivably have a $800,000-$900,000 IP in NSW and pay no land tax and if you bought it 20 years ago have only paid minimal stamp duty. On the same purchase date in California you'd be paying $12,000 - $13,500 a year on that same property (value)!

 

Removing stamp duty will simply make prices go up more, and benefit existing vendors. Someone needs to fire most people in Parliament. If you want to control house prices, limit LVR. If you ban boring outright, I bet no one can afford properties in Sydney.

 

Yes but your asset would be worth what you paid for it each and every time moving forward. Not moving backwards 20k each move.

 

I was hoping those of us here would respond on twitter to @YIPmagazine which is why I posted the tweet url, not looking for followers. (for some reason the forum software changes the url description etc to say dean on twitter.....no idea why).

Here is the YIP article REINSW president calls for stamp duty reform

Here is the NZ article on why no stamp duty is a bad idea Flipping hell! New Zealand property frenzy as two houses sold five times in four days

 

makes sense - thanks

 

WTF?????
What is a great idea why removing stamp duty is a terrible idea.