Those who have had to pay stamp duty or who work in property may be aware that stamp duty, like income tax, is charged according to fixed brackets (see diagram below).
However, those brackets have not been changed since 1986. Back then the median house price in Sydney was $100,000 whereas now it has rocketed to $1 million.
The end result is a tremendous amount of ‘bracket creep’ which has seen the average rate of stamp duty paid on a transaction climb from 3.37 per cent to 4.05 per cent in the last fifteen years.
Even income tax is adjusted for inflation from time to time however, until now, the State Government has resisted making changes with some saying it has added to a crisis of house price affordability.
That is all set to change soon with the Berejiklian Government recently announcing that it plans to peg the stamp duty brackets to increases in CPI, effective from July 2019.
The actual savings for house purchasers appear modest initially, with the average stamp duty predicted to fall by $500 in 2021.
However, the nature of this change is probably one where the savings are more long-term. For example, the Government calculates that if stamp duty brackets had been indexed to CPI 15 years ago, the amount payable on a $500,000 home would today be around $2,000 whereas the stamp duty levied on a $1.5 million home would be around $6,400 lower.
The immediate financial effect of these changes almost appear symbolic at this stage. But the symbolism is probably quite significant, with the State Government now appearing to be willing to slowly wean themselves off stamp duty revenue in an effort to address house price affordability.
It may indicate further reforms of this nature in the future and we are watching the space carefully.
Please do not hesitate to contact our office on (02) 8315 3118 should this article raise any queries.