Franzen tips #1148:Annual Land Tax - Here Today, Gone Tomorrow

Franzen Tips #1148:

Annual Land Tax -Here Today, Gone Tomorrow 

Over the past year, we reported several times on the previous (Perrottet) government’s initiatives at reforming the Stamp Duty tax on the sale of residential properties, known as the First Home Buyer Choice (FHBC). Since early this year, eligible first home buyers were able to elect not to pay the upfront stamp duty but elect to pay an annual land tax that would (apparently) then stay with that property when it was sold in the future. If the previous government had won the election they had pledged to widen the scheme to include a broader range of property purchases.

Well, what a difference an election makes. At the time of its implementation, the Labor Party opposed the new initiative and vowed to repeal the option if it was to win the government. True to their word, less than 6 months after its introduction on the 16th of January of this year, the new Premier, Chris Minns, has announced what he has described as a “simpler, fairer” stamp duty scheme where 84% (or 5 out of every 6) future first home buyers will pay no tax or a reduced rate. They have also indicated that they will close off access to the FHBC scheme from the 1st of July 2023 and put in place grandfathering provisions which will be put in place for those first-home buyers who did choose to opt into the scheme. Under the provisions, they will continue to pay that annual tax until they sell their property. The annual land tax option will then cease at that time and not apply or be available for the new owner.

Under the Minns Labor Government’s changes to the First Home Buyers Assistance scheme, the threshold for stamp duty exemptions for first home buyers will be lifted from $650,000 to $800,000 and stamp duty concessions increased from $800,000 to $1m. That means a first-home buyer purchasing a property at $800,000 will save up to $31,090 under the changes. The legislation is also intended to improve the integrity and targeting of first-home buyer assistance programs, increasing the requirement to live in the home from 6 months to 12 months.

As we reported previously, analysts and economists generally accepted the previous government's intention to move away from Stamp Duty, so this change hasn’t been met with broad support. The CPA Australia senior tax policy manager Elinor Kasapidis said while it was pleasing to see stamp duty thresholds increase, “it’s not enough in the long run”. “CPA Australia wants governments to move away from inefficient taxes like stamp duty”. “There is widespread agreement among tax experts and professionals that stamp duty should be replaced with a smaller, annual fee for all home buyers.”

I suppose it will be interesting to see what happens at the next election. If there happens to be another change in government we could expect the annual land tax initiative to be reinstated again which of course could get confusing for everyone.