NSW mulls replacing Stamp Duty with yearly tax, but it could cost more in the long run

NSW mulls replacing Stamp Duty with yearly tax, but it could cost more in the long run

New South Wales is looking to transition its property tax away from a lump sum payment the size of a car to a yearly payment, in a move that would be the biggest change to the revenue maker in 155 years.

The average homebuyer in NSW pays $35,000 on stamp duty, according to the state government, requiring people to save on average two-and-a-half years on top of their housing deposit.

But under a proposal announced by Treasurer Domininic Perrotet last night, the dated lump sum could be replaced with an annual tax.

“Stamp duty is a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life,” he said.

“If you want to move, change jobs, or switch careers, upsize or downsize to match your family size, stamp duty can be the spanner in the works.

“Our proposal would give more people the opportunity to own their own home, and more freedom to live in the home that’s right for them.”

Cheaper over the short term, but more expensive in the long run

The median price of a residential unit in Sydney was $735,350, according to CoreLogic’s November data. A buyer could make a one off payment of $28,428 on stamp duty, or make an annual payment of $2706.05.

After about ten years, the cost of the proposed property tax would be more expensive than stamp duty.

The median price of a residential house in Sydney was $993,927. A buyer could pay stamp duty of $40,065, or an annual tax of $3481.78.

But after about 11 years, the cost of property tax would be more than stamp duty.

How property tax would be calculated. Source: NSW Government

Property type Currently liable to stamp duty? Currently liable to land tax? Potential property tax rate
Owner-occupied residential property Yes No $500 + 0.3% of unimproved land value
Investment residential property Yes Yes $1,500 + 1.0% of unimproved land value
Primary production land (farmland) Yes No $0 + 0.3% of unimproved land value
Commercial property Yes Yes $0 + 2.6% of unimproved land value

No pressure to switch, but if you do there’s no going back

Homeowners get to pick if they pay stamp duty or property tax -- but if they make the switch there’s no going back.

Even if the property’s sold.

“Once a property is subject to the property tax, subsequent owners must pay the property tax,” the NSW Government said.

A threshold limiting the number of properties initially eligible to switch will be in place, the NSW Government said, but more than 80 per cent of residential properties should be able to opt-in from day one.

The trouble with stamp duty

Less people are able to afford to buy a property today than they could 30 years ago.

While the average income has trebled since 1990, home prices have increased five-fold and stamp duty has gone up by a factor greater than seven, according to the NSW Government.

The result: home ownership has declined from 70 per cent three decades ago to 64 per cent today.

Eliminating the lump sum of stamp duty would require people to save less money in order to buy a property, Adrian Kelly said, president of the Real Estate Institute of Australia, but he doesn’t believe other states should adopt a bolder approach.

“Stamp duty removal is particularly imperative for first home buyers as well as empty nesters and downsizers,” he said.

“... Whilst reforms in the NSW Budget may prove to be a promising start, replacing one tax with another does not solve the long-term problem Australia’s property market is facing.”

A survey of 700 people conducted by Gateway Bank found removing the barrier of stamp duty would help 63 per cent buy a property about 20 months earlier.

“While the NSW Government is proposing to replace stamp duty with a property tax, many first home buyers would be encouraged by any measure providing full or part relief from this upfront, one-off, cost,” Lexi Airey said, chief executive of Gateway Bank.

The proposal to replace stamp duty with a property tax is currently open to consultation, a process where the public can offer feedback.

Did you find this helpful? Why not share this news?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy


Learn more about home loans

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.