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Stamp Duty to be Replaced with an Alternative Opt-in Land Tax

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Now that Australia is recovering from the ongoing economic impact of COVID-19, state governments are looking at ways to phase out land transfer tax, better known as stamp duty.

Stamp duty is a large and inconsistent tax, totalling $23.97billion across Australia during FY2020-21 alone (or a 5th or revenue). With each state, except for Victoria, reporting a double-digit percentage increase in stamp duty revenue when compared to the previous year.

Stamp duty is also an affordability barrier for not only first home buyers, but also people wanting to move house, whether it’s because they require more space, want to move closer to work, amongst many other reasons.

Birds eye shot of a Perth suburb.

Stamp duty costs

Whilst there is some form of stamp duty concession available for first home buyers, in Sydney, only 12% of houses fall below the concession cap of $800K last updated in 2017.

In WA, there are 5 different price brackets that determine the amount you will pay in stamp duty costs.

Property valueTransfer duty rate
Up to $80,000$1.90 per $100 or part thereof
$80,001 to $100,000$1,520 plus 2.85% for every dollar over $100,000
$100,001 to $250,000$2,090 plus 3.8% for every dollar over $250,000
$250,000 to $500,000$7,790 plus 4.75% for every dollar over $250,000
$500,001 and over$19,665 plus 5.15% for every dollar over $500,000

In March 2022, the median house price in Perth was $527,000, demonstrating just how much home buyers are paying in stamp duty costs.

Land tax as an alternative

According to Sydney Morning Herald, NSW will move to phase out stamp duty, with first home buyers who opt into the property tax will pay the annual levy of $400 plus 0.3 percent of the land value of the property rather than stamp duty on properties worth up to $1.5 million.

With the median stamp duty in NSW currently sitting at $50,000, under this new opt-in option, a prospective buyer would weigh up paying the $50,000 upfront or $2,400 in land tax per year.

If the buyer lives in the home for 21 years, they will end up paying less in total land tax costs per year than they would paying stamp duty.

Board based land tax would be consistent, it would be collected from everyone not just people who transact, which means governments can better plan for their expenditure moving forward.

In WA, the 2022-23 State Budget announced a 50 percent land tax concession for eligible build-to-rent industry in WA. Learn more and check your eligibility here.

Experts predict that the opt-in to land tax as an alternative to stamp duty will be an option to new home buyers across all states.

Unintended consequences

Some experts are not quite convinced that having an opt-in land tax option over stamp duty it’s the right way to go.

John Freebairn from The University of Melbourne wrote in The Conversation “The voluntary opt-in will give buyers who expect to hold a property for longer than average, for more than 20 years, an incentive to turn down the offer of land tax and pay stamp duty as before; while those who expect a short stay will opt for the land tax,”

“This entirely rational behaviour will further reduce government revenue, aggravate the inequity of the system we’ve got, lock some owners into the properties they already own in order to avoid paying for government services, and postpone the benefits of moving to a system in which tax doesn’t distort the use of land.”

Some other consequences that we predict may arise from using land tax as an alternative to stamp duty is, while it removes an upfront barrier to purchasing a property, the land tax could see the amount people can borrow reduce as banks would factor in the “ongoing” costs just as they do for other living expenses (eg car repayments, TV subscriptions, Uber eats etc). In other words, land tax would negatively impact “affordability” assessments. It may also artificially raise the cost of homes in the short term.

Stamp duty alternatives from around the world

Realestate.com.au takes a look at how stamp duty can be abolished or applied differently without leaving a hole in the economy.

New Zealand has no stamp duty, however their GST is a flat rate of 15% whereas Australia’s is 10%.

Canada has no stamp duty and instead the country imposes a tax on the occupation of a property. This is similar to what some experts and politicians are suggesting be adopted in Australia.

View more stamp duty alternatives from around the world here.

Final thoughts

Although there may be some unintended consequences that arise from the opt-in land tax alternative to stamp duty, it will be a great way to enable more new home buyers to purchase a property. If you are unsure on how this will affect your likelihood of getting approved for a home loan, or want to know how much you’re eligible to borrow, speak to a Ledge Finance Executive today.


Please note the information provided here is general in nature and does not constitute financial, tax or other professional advice. You should consider whether the information is appropriate for your needs and seek professional advice prior to making any decisions.