The COVID-19 pandemic has already had a huge impact on declining real estate sales in Victoria, leading to forecasts of severe drops in stamp duty revenue over the 2019-20 and 2020-21 financial years. Given that state governments are primarily reliant on duty on real estate transactions, land tax, payroll taxes and their share of the annual GST distribution from the Commonwealth, many commentators are now asking: Is it time to reform state taxation and remove stamp duty?
As a wildly volatile revenue stream, stamp duty tax has frequently been criticised. The Property Council of Australia goes so far as to say that stamp duty is Australia’s “most unpopular” tax. Stamp duty ultimately deters people from moving house and buying property, decreasing labour mobility, market supply, construction activity and even lifestyle changes such as moving closer to work or family.
Its success is reliant on either a high turnover of properties or increases in property prices – both of which are at risk due to the economic impacts of COVID-19. But stamp duty was already in trouble. In 2018-19, prior to the current market downturn, stamp duty revenue was the lowest it has been since 2014, with Victoria and NSW significantly affected.
So, if stamp duty is turning people off buying property, and tax revenue is dropping as a result, isn’t it a lose-lose scenario? What are the alternatives?
What’s the solution to stamp duty tax reform?
Both Victoria and NSW are currently considering stamp duty tax reform. It makes sense to question inefficient taxes like stamp duty and payroll tax, which act as a disincentive to purchase property and hire new staff respectively.
It has been argued by economists for a long time that flatter taxes, which don’t have too many exemptions, are more efficient. As a result, the model being explored is a broad-based land tax that almost everyone would pay, but at a relatively modest amount: a much safer and more efficient way for state governments to collect revenue.
In the event of a downturn, land tax would still be collected with the ability of the Treasury to temporarily lower rates or provide longer to pay due to economic hardship.
Land tax already exists, of course, but there are many exemptions and different rates depending on the structure that real estate is held in. A new, uniform land tax with lower rates payable could collect a more consistent level of revenue and would incentivise purchasers and employers.
How will stamp duty tax reform affect your decision to purchase property?
Stamp duty tax reform will likely form part of a wider reform package aimed at stimulating the Australian economy in the wake of COVID-19. Victoria and NSW are leading the charge on this package, though it is understood that the implementation of the new tax system is still some time away.
In the meantime, it’s important to understand how stamp duty will impact your decision to purchase property. The amount of stamp duty you pay depends on the value of the purchase, the type of transaction taking place and where you live. And in some circumstances, you may be eligible for an exemption or concession.
As stamp duty taxes vary from state to state, you may be exempt from paying stamp duty based on where you live. For example, Victoria has introduced an exemption for first-home owners buying a property of less than $600,000 and a concession for those buying a property between $600,000 and $750,000.
If you’re keen to understand exactly how much stamp duty you would be required to pay on the purchase of a property, you might like to check out our BlueRock Victorian Stamp Duty Calculator. By answering a few quick questions in the bot, you can get an accurate indication of what stamp duty you would be required to pay.
Please get in touch with BlueRock Law if you have further questions about land tax or stamp duty.