With a new financial year upon us and new state budgets released, several governments have been shifting the way they tax property. In this feature, we review some of the key changes across the states and what brokers think of them
Two things in life are certain: death and taxes, according to Daniel Defoe. But several state governments have been ripping up the rule book when it comes to taxes recently, reducing the dread that some home buyers may face when it comes to taxes. Here, we cover off some of the big changes in property tax coming up.
NSW
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NSW expands stamp duty threshold and concessions
The NSW government recently scrapped its First Home Buyer Choice (FHBC), an initiative that enabled first home buyers purchasing a property up to $1.5 million to choose either stamp duty or an annual property tax.
The option originally came into effect on 16 January under the former NSW administration (under former NSW premier Dominic Perrottet) in a bid to lower the upfront costs of a first home buyer’s purchase and reduce the time needed to save for a deposit.
However, after Chris Minns took power earlier this year, it was announced that the FHBC would be repealed from 30 June, in favour of an increased stamp duty exemption threshold.
As such, as of the beginning of this month (1 July), the transfer duty exemption threshold increased from $650,000 to $800,000 and the concessional rate increased from $800,000 to $1 million for new and existing home purchases by eligible first home buyers.
The First Home Buyer Assistance Scheme (FHBAS) is estimated to help 84 per cent of FHBs, by either enabling them to avoid paying stamp duty or pay a reduced rate.
Speaking of the changes, Anthony Landahl, managing director of NSW-based brokerage Equilibria Finance, said: “If I think about first time buyers we’ve had over the last 12-month period, a big portion of them would have probably been sitting in that $800,000–$1 million mark, which is where the concessions sit.
“So, by increasing some of those stamp duty concessions — even if it’s replacing the old program — that can only be a good thing. The good thing is they’re trying to assist and focus on first home buyers getting into the market, as it has been hard for first home buyers to do so recently.”
However, Eva Loisance, manager of the broker division at Finni, said that there could be a negative impact on prices.
She explained: “While the reform intends to make housing more affordable and accessible for first home buyers by offering a full concession up to $800,000 or reduced stamp duty up to 1 million, the effect of the reform on house prices is not so clear.
”The change has been welcomed by first home buyers looking to get into the market in areas where the previous schemes didn’t help. However, stimulating demand in the eligible price range will probably result in higher property price as demand will exceed supply. This could undermine the reform’s purpose with a ‘seller’s market’ potentially returning sooner than expected.“
SA
SA stamp duty change
Similarly, South Australian brokers have welcomed the state government’s move to scrap stamp duty for first home buyers who purchase a new home or vacant land to build a new home.
A full stamp duty relief applies to the purchase of an eligible new home valued up to $650,000, with the relief progressively phasing out for properties valued up to $700,000.
For the purchase of vacant land on which a new home will be built, full stamp duty relief applies for vacant land valued up to $400,000 with the relief phasing out for land valued up to $450,000.
New homes valued at $650,000 or less will also now qualify for the First Home Owners Grant (FHOG), up from $575,000.
The South Australian government said this aims to “reflect the significant increase in land and build costs and more closely aligns the FHOG with Adelaide’s median house price of $675,000”.
According to the state government, the moves could assist around 3,800 first home buyers each year.
Speaking of the changes, Marissa Schulze, managing director at Rise High Financial Solutions, told The Adviser that she thought South Australian first home buyers “will be thrilled”.
“Stamp duty is a large upfront cost and it can be a major barrier to getting on the property ladder for the first time,” she said.
“The introduction of the new rules on 15 June 2023 could mean that FHBs would need to save up to $30,000 less towards their deposit.
“In the current economic environment with rising costs of living, this could make the difference between getting into the property market quickly or having to continue renting for a much longer period of time.”
The Rise High Financial Solutions MD said that the brokerage expected the new initiative to boost the housing market in South Australia.
“The new rules are aimed at those looking to buy brand new homes or vacant land which will be a great stimulus for the construction industry and lead to increased job creation around the state,” Ms Schulze continued.
However, she also warned that the move could lead to higher property prices, noting that “this particular price range (under $650,000) is definitely in hot demand at the moment”.
“Increased demand can often lead to increased house prices,” she said, but concluded that the move was net positive for FHBs and the housing and construction market in South Australia.
Similarly, Sam Walker from Aussie Prospect said many of his recent clients “had been having issues” finding properties under the current FHOG threshold of $575,000.
As such, he believes the changes “will allow more people to access the First Home Owners Grant”.
While the broker conceded that any stimulus could have an inflationary effect on the prices of qualifying homes/parcels of land — and on the ability of home builders to deliver these properties on time — he concluded: “I think it’s only going to be a positive thing, if it allows more people to get into the property market earlier and therefore home ownership becomes more affordable.”
As well as the FHB measures, the South Australian government also announced a land tax reduction for eligible build-to-rent projects on South Australian land, where construction commences on or after 1 July 2023.
This relief applies as a 50 per cent reduction in the land value of relevant parcels of land, where the land is being used as an eligible build-to-rent project.
The land tax reduction will be available from the 2023–24 financial year up to, and including, the FY39-40.
VIC
Victoria abolishes stamp duty for commercial property, brings in property tax
The state government of Victoria has announced plans to abolish stamp duty for commercial and industrial properties and replace it with an annual property tax.
From 1 July next year, commercial and industrial properties will transition to the new system as they are sold, with the annual property tax to be payable from 10 years after the transaction.
Under the new system, the first purchaser of a commercial or industrial property after 1 July 2024 will have the option to choose to either pay the property’s final stamp duty liability as an upfront lump sum or opt to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.
These arrangements will not apply to the current owner of any commercial or industrial property purchased before the middle of next year. Once a property enters the new system after this time, stamp duty will never again be payable on a transaction and the annual property tax will apply.
The annual property tax, which will replace stamp duty, is set at a flat rate of 1 per cent of the property’s unimproved land value.
Financial services director at Inovayt, Marty Vidakovic, said the move will “certainly pique interest in purchasing commercial property”, which has grown in recent years.
“From a finance perspective historically shorter loan terms and lower LVRs restricted entry-level commercial purchasers from placing in capital that might be better spent elsewhere in running their business,” Mr Vidakovic said.
But he added that commercial finance has become “much more nimble and relevant in the last four to five years encouraging purchasing in the space”.
“In the past you would only purchase a commercial property if you were well established with excess capital reserves,” Mr Vidakovic said.
Mr Vidakovic said commercial brokers will be “pivotal in supporting clients” to work out their ongoing costs in alignment with their business goals and plans.
“Numbers tell a story and this could inject a spark that is needed in this sector of the property market,” Mr Vidakovic said.
However, the government will also reduce the tax-free threshold for land tax from $300,000 to $50,000, from 1 January 2024.
Those who pay land tax will also incur a temporary fixed charge starting at $500 for properties up to $100,000 in value and $975 for those up to $300,000.
Property Investors Council of Australia (PICA) chair and broker principal at Empower Wealth, Ben Kingsley, estimated Victorian investors with land holdings worth $1 million will be slugged about $2,000 in extra land tax per year.
“The Victorian Labor government are telling property investors that their investment dollars aren’t required in Victoria,” Mr Kingsley said.
“Their recent policy decisions and the fact they are considering some form of rental freeze or cap has us ranking them as the least supportive government in fixing the rental crisis of every state and territory government. They have taken over from the ACT, with Queensland taking out third bottom place.”
He added that given the recent “tax slug” and the most restrictive tenancy legislation in the country, Victorian purchases “might not be the right call for investors now” (depending on what their existing portfolio looks like).
Mr Kingsley continued: “It’s going to create a chronic shortage of rental properties, making Melbourne a very difficult city to attract future talent if they can’t get a rental property and homelessness an even bigger stress point.”
WA
WA build-to-rent boost
Meanwhile, the Western Australian state government has moved to boost rental property supply in the state through a land tax exemption.
The McGowan government has introduced new legislation to provide a 50 per cent land tax exemption for up to 20 years for eligible build-to-rent developments.
In order for a development to qualify for the exemption, it must contain at least 40 self-contained dwellings available for residential leases; be owned by the same owner/group of owners and be managed by the same management entity; and be completed between 12 May 2022 and 1 July 2032.
A retrospective land tax would apply if a development stops meeting criteria within the first 15 years after the exemption is granted.
Premier Mark McGowan said the move aims to develop the build-to-rent industry by offering tax relief, “increasing the future supply of local rental properties.”
