What is stamp duty, why is NSW getting rid of it and what will replace it? Dominic Perrottet says the move will let more first homebuyers into the market by replacing an upfront cost with an annual property tax New South Wales is getting rid of stamp duty for first homebuyers in this year’s state budget. What will it mean for buying a home? And what will be put in place instead? What is stamp duty? Stamp duty is a tax charged by state and territory governments on property purchases, paid at the time of purchase. The rate will vary depending on the location and the value of the property but currently in New South Wales, for a home priced between $313,000 and $1.04m, the rate is $9,390, plus $4.50 for every $100 over $313,000. So, for example, the stamp duty on a $750,000 home would be $29,055. It’s usually capitalised on to your mortgage. Why is New South Wales getting rid of it? The New South Wales government has announced as part of this year’s budget a $728.6m housing plan that will remove what the premier, Dominic Perrottet, says is one of the largest upfront costs to buying a home and instead replace it with an annual property tax. What will replace it? A property tax option will be available for homes of up to $1.5m in value. First homebuyers who opt to pay a property tax will pay $400 per year, plus 0.3% of the land value of the property. The NSW government has estimated that about 97% of first homebuyers in the state, or around 55,000 people per year, will be eligible. What about the existing concessions? First homebuyers will still be able to apply for full stamp duty exemption for properties valued up to $650,000, and concessions for properties between $650,000 and $800,000. When will the new option be available? Property tax legislation will need to pass NSW parliament. Perrottet and the NSW treasurer, Matt Kean, said it would be introduced in the second half of 2022, with eligible first homebuyers able to apply from 16 January 2023. When do I have to pay stamp duty? Just as the stamp duty rate changes from state to state, so does the timeframe in which you need to pay it. NSW – within three months of signing a contract for sale or transfer. QLD – within 30 days of settlement. VIC – within 30 days of settlement of your new purchase. ACT – after settlement and within 14 days after receiving a Notice of Assessment TAS – within three months of the transfer of the property NT – within 60 days of settlement SA – at settlement WA – one month after a duties assessment notice is issued. The issues with stamp duty An out-dated tax The original tax for stamp duty comes from an old system of government. Land transfers were less common and property wasn’t logged to the level of detail that it is today. Plus, the actual process to officiate a sale and stamp (yes, a real stamp) the documents took more government time. Stamp duty was therefore an imperfect way to make sure the government was getting taxes from property owners, but things have changed a lot since then. Not only is the process much easier for governments, but they have accurate and up-to-date records of every piece of land in their state or territory. The way we buy and sell property has changed, and so the question is – shouldn’t the taxes that come with it change too? The cost of stamp duty Easily one of the most significant purchases the average Australian makes is buying property. It’s an exciting dream that many of us pursue. But at the same time, it’s a high financial bar to get over. Property prices have soared upwards over the past few decades and are now vastly higher than the average income. Which means that stamp duty is not only a high tax, but it comes at a time when the difference between the average wage and the average price of property is wider than ever. Behaviour changes Perhaps most importantly, the cost of stamp duty also leads to some behaviour changes. The added cost is a big barrier to anyone trying to enter the real estate market. But not only this, it’s a big deterrent on anyone who’s looking to move to a new house. A growing family may choose to stay and try to renovate or expand their current house just to avoid paying stamp duty again. So too, retirees often stay in houses that aren’t ideal for their needs simply because downsizing will cost them a lot in tax.