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Following a move to pause stamp duty charges for new homeowners looking at properties valued at under $800,000 in mid-2020, the New South Wales (NSW) government is taking a step further by considering an alternative tax for homebuyers. Under the proposal, individuals will choose between the stamp duty tax or an annual property tax for the duration of ownership. 

Critics of stamp duty believe that it is an outdated and inefficient system that makes homeownership cost-prohibitive to many potential buyers. For example, a one-million-dollar home would attract about 4 percent in stamp duty charges (or $40,000), which can discourage many from taking the step. Many also argue that this charge is volatile, considering how the housing market is affected by overall economic activity.  

The NSW government hopes that by providing an alternative, people will find it easier and cheaper to move into new homes, while also providing the state with a reliable revenue stream. 

The State of Stamp Duty 

As part of the state’s plan to introduce cushions against the economic dent caused by the COVID-19 pandemic, the NSW government suspended stamp duty payments from the 1st August 2020 for 12 months. The tax had previously applied to new homes valued at more than $650,000; the temporary suspension sought to raise this threshold to under $800,000 for new homes and vacant land.  

In practice, a new home valued at $799,000 would attract a stamp duty charge slightly above $31,000, a figure that new homebuyers can save through the suspension. Experienced property developers such as Michael Akkawi know that these sums can be channelled into other worthwhile options.  

Will NSW’s Alternative Proposal Work? 

Providing an alternative is the state government’s way of ensuring homebuyers don’t pay double tax on their properties. However, advocates of the annual property tax say the stamp duty should be completely abolished, as a mixed approach could impact the state’s budget projections. Some argue that those planning to live in new homes for a short period might opt for the annual tax, while long-term dwellers may view the stamp duty as more favourable. Economists foresee budget shortfalls down the line by adopting the optional approach, but also contend it may be the best way to get people to accept the property tax. 

For homebuyers in Sydney and other prime property locations, saving tens of thousands in upfront costs is a welcome move. For the government, the hope is that giving buyers alternatives will boost market activity, increasing the state’s overall economic value.