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Two major Australian accounting groups have come out in support of the removal of stamp duty in New South Wales, but note the opt-in system could have some interesting effects.
Both CPA Australia and Chartered Accountants Australia and New Zealand (CA ANZ) have published their submissions to the state government’s “Buying in NSW, Building a Future” consultation paper.
It follows the release of New South Wales budget papers last year that kicked off considerations for reform in the space.
The model that’s being put forward has the overarching aim of providing people purchasing a property the choice between paying stamp duty up front or opting for the smaller annual property tax.
At the time, state treasurer Dominic Perrottet said it was hoped the overhaul could enable more people to “own their own home and have more freedom to choose the right property for their family at every stage of life”.
Within their responses, both groups point to greater stability that can be gained through shifting to a property tax and their support for more efficient tax systems.
For CPA Australia’s executive general manager, Dr Gary Pflugrath, “the replacement of the volatile and inefficient transaction-based stamp duty will change to a more stable revenue stream for government through annual tax levied on all owners of property in New South Wales”.
But he expressed that the organisation is “mindful of the potential long-term tax burden on property owners”.
According to Michael Croker, the tax leader in Australia for CA ANZ, a move from stamp duty on property to an annual tax on land “is a significant tax reform that can reap substantial economic and social benefits”.
“Stamp duty is considered one of the least efficient taxes,” he continued, pointing out “numerous economic analyses have concluded that moving from stamp duty to property tax will generate economic benefits”.
One big feature of the proposed abolition of stamp duty, since the idea was first raised by the NSW government, has been to provide property purchasers with a choice between an annual property tax and a large lump-sum duty on a purchase.
According to CA ANZ, property purchasers who currently can access stamp duty and/or any land tax exemptions or who intend to hold a property long-term “would probably not choose a property tax”.
It flagged that “given that only 25 per cent of commercial properties are subject to land tax and that over half of owner-occupiers have been in the same home for at least 10 years, this could be a very significant proportion of active market participants”.
CA ANZ also noted that property developers and property “flippers” would be more likely to opt for property tax.
CPA Australia took this point a step further, arguing that the decision between stamp duty and property tax would be determined by the overall cost to the purchaser.
“If the property tax provides a net benefit greater than the stamp duty, it is more likely that a purchaser will opt in [to property tax],” it said.
CPA Australia highlighted that anyone who does intend to hold their property long-term — for more than 12 to 18 years — “stamp duty remains the cheaper option”.
It also stated that the certainty of a lump-sum amount “may also be preferable to the property tax which will increase over time due to growth in unimproved land value and, potentially, changes to the tax rates”.
One consequence that could occur, according to the body, is that by offering a choice to opt in, “a dual market may exist for some time with prices for properties subject to land tax being different from those that retain the option to pay stamp duty”.
Even with their stances, both accounting groups have noted a need for further details to be released to the public before any kind of transition plan can be put in place.
Dr Pflugrath flagged a lack of time frames around price thresholds and opt-in components of the proposed tax, as well as the need for modelling to be made available to assess the results of alternative approaches.
Mr Croker, on behalf of CA ANZ, went one step further, calling upon the NSW government “to release the detailed distributional and financial modelling that has been undertaken to date so that the impact on future revenue and property prices can be better understood”.
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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