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March 13, 2024

Stamp duty costs Australian homeowners up to half a year's income

Stamp duty costs Australian homeowners up to half a year's income
Stamp duty costs Australian homeowners up to half a year's income

Written By

Chrish Samuel

Chrish Samuel

Managing Director

DOMAIN defines Stamp duty (officially known as transfer duty by Revenue NSW) as the tax paid when you buy a property or vacant land (investment and owner-occupied). The stamp duty is based on the property’s sale price or its current market value, whichever is higher. Stamp duties are determined by the governments of each state and territory. This means that rates, price brackets, and exemptions vary by state and territory. The Australian Stamp duty was first introduced during the early European settlement in Australia. The colonies, which later formed the states of Australia, began implementing stamp duty as a way to fund the growing infrastructure and public services.

Stamp duty reform has become a topic of increased interest in recent years, as numerous stakeholders contend that it might not be the most equitable or efficient method of generating revenue. However, it continues to be an essential component of the Australian tax system.

Joint research conducted by E61 Institute and PropTrack found that stamp duty tax in Sydney was 5.4 times more than it used to cost in the early-to-mid 1980’s. Meanwhile, in Melbourne there was a 6.1-fold rise from four decades ago, the most significant increase of any capital. Stamp duty costs around six months take-home income in Sydney and Melbourne. Despite the fact that stamp duty was waived for owner-occupiers in Brisbane, which resulted in reduced expenses for purchasers, it still amounted to $25,900, or 3.7 months of income for investors. According to Angus Moore, a senior economist at PropTrack (who led this research), the cost of stamp duty has covertly doubled since the 2000s.Research Manager at the e61 Institute, Dr Nick Garvin, said: “Our research also highlights the indirect impacts of stamp duty on other parts of people’s lives including whether or not they change jobs, and when they decide to have children. Housing costs have caused one quarter of Australians under 40 to delay changing jobs. Stamp duty has caused more than one in five 30–40-year-olds to delay having kids and are preventing people of all ages from moving homes.

Recently, REA Group Economist Anne Flaherty told on Sky News Australia that stamp duty is an incredibly inefficient tax "It keeps people in homes too long, it prevents turnover in the market, and it’s just a massive, massive burden on people who are considering selling and buying a new home. Stamp duty has just really experienced what we call bracket creep. It is a massive disincentive for people to actually put their homes on the market to purchase a new property.”

According to an article published by DOMAIN, over the past 20 years, the average annualised growth of Sydney house prices is 7.3% and for Regional NSW it is 7.8%, whereas annualized growth is less than half at 3.4%.Since 2002 until March 2022, Sydney house prices have risen 280% while the cost of stamp duty has escalated by 406%.Over the same period, the median house price in Regional NSW has jumped 324% while stamp duty costs have risen 524%.

The phenomenon of stamp duty bracket creep gained significant prominence amidst the surge in the pandemic. The stamp duty threshold for each state varies. In the NSW, there are standard stamp duty rates, as well as a premium rate for residential properties worth more than $3.131m (as of February 1, 2022). The highest threshold within the standard rate is set at a property value above $1.043m. Each year the threshold amounts for standard stamp duty, and premium duty rates are adjusted in line with movements in the Sydney Consumer Price Index (CPI). In 2019, 2.6% of Sydney suburbs had a median house price that fell into the premium stamp duty bracket (at the time this was a property value above $3m). The number of suburbs that fell into this premium bracket was four times higher in 2022, at 10.4%. Despite the premium bracket increasing in line with CPI, more suburbs were deemed as premium.

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