New South Wales Stamp Duty Changes

Residential property is often a key element of investment portfolios for most Australians, and as the largest asset class in Australia, it’s easy to see why. Our love for brick and mortar exposure has remained strong for many years, and we don’t expect that this will change any time soon.

This is also reflected in recent State and Federal Government announcements and incentives for Australian property, with New South Wales being the key state to announce proposed changes to stamp duty.

This week our team at Ally Wealth Management is exploring the key stamp duty changes in New South Wales, who they’re likely to impact, and how you can take advantage of the potential savings. At this stage, the proposed changes are open for public consultation until mid-March 2021 and are unlikely to take effect until July 2021.

Let’s first consider the proposed changes

The proposal announced by the New South Wales Government is to effectively phase out stamp duty over time. It will not quite be the simple cuts that Victoria has announced, but could still allow some families to get onto the property ladder sooner than they otherwise may have been able to. The proposed change would mean that property buyers face the choice of paying either stamp duty as has always been the case, or paying an annual property tax, not dissimilar to land tax.

While stamp duty is often viewed as a lazy and inefficient tax, it is also an important element of state revenue, contributing approximately $7.4 million to the NSW State coffers over the past year.

For those considering purchasing a house but were finding that the additional hurdle of having to pay for stamp duty made it too difficult, this could be a significant win. Typically, with the exception of certain professions such as lawyers, doctors, engineers and accountants, a 20% deposit is required to avoid the need to pay for Lenders’ Mortgage Insurance (LMI), which can add tens of thousands of dollars to your mortgage balance.

When could these changes take effect?

We do not expect these changes to take effect until mid-2021, following the public consultation which remains open until mid-2021. There is the chance that the proposal also changes before then depending on the feedback.

The impact that this will have on the property market and individual buying decisions remain to be seen. Will we see first homebuyers put their buying decisions on hold while waiting for the potential saving to stamp duty? Will investors look to get in before the changes take effect?

Given the choice that property buyers will face with new purchases, we expect that this will likely create two distinct markets, one with properties that have no ongoing annual fee attached given stamp duty was paid, and those that do have the annual fee.

Who will be the winners of the proposed changes?

While it could certainly be a significant win for those first home buyers trying to get into their own home and onto the property ladder, we also expect that those looking to buy a property for a short to medium time period could also be beneficiaries. Under the proposed changes, they could elect to solely pay the annual fee, rather than be hit with a hefty stamp duty bill upfront.

To put this in perspective, a property purchased for $1 million would attract a stamp duty bill of approximately $40,355, representing just over 4% of the property value. This may mean that Australian households move more often without facing the stamp duty burden for doing so.

The losers from the proposed changes will largely depend on how the ongoing land tax is to be calculated. There have been rumours of a $500 flat fee plus 0.3% of the unimproved value of the property paid annually, which would mean that on average somebody who held the property for greater than 15 years would be worse off under the land tax scenario.

If you have any questions about stamp duty or how these changes could impact you, feel free to reach out to our team.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

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General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.