NSW’s Proposed Changes to Stamp Duty Explained

If you’re hoping to buy property in New South Wales, stamp duty is likely putting an additional strain on your finances. Well, that might be about to change. 

For many, stamp duty can add tens of thousands of dollars to an already expensive property purchase. In Sydney, for example, where the median property value is over $1 million, the average property purchase will come with a minimum $40,000 stamp duty fee. 

In fact, stamp duty is so exorbitant in New South Wales, that stamp duty revenue in the state helped to cut the 2020-21 NSW budget deficit in half.

While stamp duty can certainly provide a needed boost to budget projections, it can also place additional financial stress upon those looking to buy a home, particularly in NSW where the issue of housing affordability continues to grow. 

For some, the current stamp duty costs have priced them out of the market. 

However, there may be good news on the horizon for those looking at the NSW property market, following a proposal made by the NSW government that could lower upfront stamp duty costs for homebuyers. 

But first, let’s break down what stamp duty is. 

What is stamp duty?

Stamp Duty is a mandatory tax levied by state and territory governments that must be paid typically within three months of buying property, insurance, or a motor vehicle. 

The rate of stamp duty that must be paid is dependent upon which state or territory the property is in, as well as the value of that property. The more the property is worth, the higher the stamp duty will be. 

For example, in NSW, a property valued above $1,033,000 will come with a $41,820   stamp duty fee plus  $5.50 for each $100 over $1,033,000.

Stamp duty is not tax-deductible when buying a property, however, when selling or transferring a property, stamp duty can be claimed against Capital Gains Tax (CGT).

With that out of the way, let’s take a look at the new stamp duty proposal in NSW. 

The New Proposal 

In an effort to improve housing affordability and homeownership among younger generations, the NSW government has introduced a proposed change to the large, upfront stamp duty that must be paid when purchasing property in the state.

The proposed changes would see that rather than pay a one-off, large sum of money upfront as stamp duty, homeowners may opt to pay a smaller, annual property tax when they purchase a property.

For buyers who choose the property tax, future owners will no longer get to choose between stamp duty and property tax.  

The proposal states:

“At the moment, full stamp duty concessions are available to first home buyers purchasing homes up to $650,000 with partial stamp duty concessions offered on homes of up to $800,000.”

“Given the price of homes, this leaves about a third of all first home buyers paying the full amount of stamp duty. The up-front costs of a home are particularly constraining for first home buyers, because it can take many years in the workforce to save the necessary amount.”

The proposed changes would reportedly “inject $11 billion back into the economy over the first four years, putting money back into the pockets of the people of NSW and stimulating the state economy as we continue to manage and recover from the COVID-19 crisis.”

How much will it cost? 

The progress paper on the proposed changes to stamp duty illustrates the potential costs of the change, demonstrating a significant reduction in overall costs for homebuyers. 

The paper states that “the reform is not a tax grab. As discussed below in section F, the reform would cost significant amounts of revenue over the first twenty years. Moreover, legislative protections would be put in place to restrain future governments from changing the tax rates or the indexation methodology.”

However, the report goes on to state that payments may change over time to keep in line with the economy and incomes. 

When will it take effect?

The NSW Government finished seeking feedback on the proposed stamp duty changes on Friday 30th July 2021.

It remains unclear as to when the changes will be implemented, though the proposal has received broad support from experts and home buyers alike, with CoreLogic’s Tim Lawless stating: 

“the upside is that housing turnover should increase, which in itself will have a positive multiplier on the local economy.”

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