What would happen if stamp duty was abolished

It would be great for debt recycling!

 

Great post. When maintaining the tax revenue, we should also be thinking of volume and not just rate. Say you cut the rate of CGT and stamp duty. Turnover in housing increases. If you 1/2 these taxes and double turnover (as people are more inclined to buy and sell), then total tax take remains stable. Reagan experienced this when he cut income tax rates by 30%, yet the total tax take increased.

 

If sd was abolished wouldnt the prices of thw property fall whilst become growth become twice as slow?
Since eveyrone is getting into it due to lower entry

 

I would have thought that, if S/D was abolished, purchasing costs would be dramatically reduced, people need less savings to buy a property, people can buy a property sooner, demand goes up, prices go up, ... and everyone is happy and positive again

 

Did you steal that idea directly from my dreams?

 

Thats what i Thoguht orginally but i would think yields get so bad that growth would slow....

 

I only buy in high OO areas, so growth is more driven by demand than by yield.

 

I am definitely up for abolishing stamp duty!

However, there is one thing that I considered for those of us who hold long term (and assuming it is replaced with an ongoing property tax like in the US which some advocate for).

If you buy a $750,000 property in Australia now it will cost you somewhere around 3-4% of the purchase price in stamp duty depending on the reason for purchase and the state. Let's go with 3.5% so $26,250 up front cost. It's a family home and you end up holding it for 20 years while the kids grow up etc.

If you had bought the property with no stamp duty but a ongoing property tax of say 1% of the value of the property every year ongoing (roughly how it works in California for example), over that 20 years you pay $150,000 in property tax...and that assumes the value of the property doesn't go up a dime for 20 years (which we all know simply can't happen in the current monetary system)! For those who know anything about maths, you can imagine the compounding effect of that 1% over 20 years on a rising property value...

Food for thought.

 

Good points. Of course, we already have an ongoing tax on property in the form of land tax, albeit it does not apply to the PPOR. In Victoria, top marginal land tax rate is ~2% per year.

 

It also doesn’t apply on IPs provided the value of the land is under the state’s threshold. Depending on your strategy (what type and price of property you buy) it’s possible to have a few in each state and still not pay land tax. For example I have 3 properties in Queensland - a unit and 2 houses - and don’t pay an land tax as the threshold is reasonably high.

For anyone reading, it’s also cumulative in any given state but is state based so once you buy in another state, your threshold starts from zero in that state (another good reason to diversify).

- Andrew

 

You have omitted a key taxation difference in the US when creating this hypothetical scenario.... PPOR tax deductions including mortgage interest... this has a big net affect on overall costs which is countered by their land tax arrangements

 

Absolutely as there are many difference as with any tax system - no negative gearing and CGT is completely different too. Different marginal rates, county taxes, state taxes and federal taxes, mello roos, etc.

It’s very hard to compare any tax system by picking items in isolation, which I wasn’t necessarily attempting to do. Over the years I’ve heard many people wish for a small ongoing property tax like the US in lieu of stamp duty so I guess I was trying to point out that in isolation the maths doesn’t really add up. It’s just a consideration.

- Andrew

 

Property prices wouldn't fall they would rise as stamp duty should already be factored into the viable price. It means more can be paid before the price becomes unviable. It would be no different than the grants that only made property more expensive as people had more money to spend.

 

This is true, the abolition of stamp duty in certain states for certain types of purchases has only served to bump prices, as with grants as you have mentioned.

- Andrew

 

Stamp duty wont be going anywhere. First its a state tax and it would require each state to adopt a uniform position and thats not happening. Look at how duty been used in recent years to address foreign buyers and QLD. Stamp duty also acts as an entry barrier to property dealing (flipping) ventures where an annual tax would not.

Moving towards an annual tax would also leave some harmed and others with a benefit creating social issues. eg people on fixed income may find the cost unaffordable and flipping could make first home buying a very challenging barrier to the benefit of small businesses that renovate for profit.

 

except up perhaps?

 

Its self indexed. The problem is when values fall...One of its benefits is the states rely on values rising and property to roll along. So states incentive people to buy (first homes) and it in their interests for values to be stable. Keep people in jobs etc. And remember GST is earned when new property settles and the states get that too. Local Govt gets its contributions etc...

They wont up duty at present. Too many economic outcomes. But they could do a Morris Iemma and bring in some higher duty concessions for new builds to act as stimulus for jobs etc. He dropped taxes and revenue rose.

 

@kierank you mentioned that stamp duty is a capital expense (for investment properties) that ia only deductible when one sells.

Can you please unpack this a bit more? I've never sold an IP before (only a PPOR onve which isn't applicable here) but Im selling an IP soon. I drafted my accountant an email but she hasnt responded.

Is it correct to say that stamp duty (state tax) on an IP can be used to reduce my cost-base for CGT calculation, once I sell it later? E.g. lets say the total gain (price you sold for minus price you paid) was $100k. Lets say all those years ago, i paid $5k in NSW stamp duty. Does this reduce my cost base for CGT calculation from $100k to only $95k?

 

Yes

 

@C-mac, I am not an accountant but my understanding of the calculation is:

Sell Price
- Selling Costs (commission, legals, etc)
- Purchase Price
- Purchase Costs (B&P inspection fee, stamp duty, legals, etc)
- Capital Improvement Costs
+ Claimed Building? Depreciation

= Net Capial Gain

I could be wrong and will leave it to others to correct me.