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The NSW government’s proposed shift from a one-off stamp duty payment to ongoing payments of property tax has sparked concerns over who can offer advice on it, and how it disproportionately impacts owners of some property types more than others.
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Accountants cautious over NSW move from stamp duty to property tax
10 September 2021
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In a submission to the NSW government’s property tax proposal, Chartered Accountants Australia and New Zealand said as many as 48 per cent of its members had yet to decide whether to support the proposal, suggesting the government has much to do in terms of offering more detail on the proposal’s impacts on home buyers, and the NSW economy.
“The Progress Paper introduced a property tax surcharge and indexation of property tax rates,” CA ANZ said. “These changes increase complexity about determining future property tax liabilities which makes it difficult to advise property market participants.
“Lack of certainty about future property tax payments is likely to deter property market participants from opting in to the property tax regime and may extend the already long transitional period, and affect the revenue cost of this proposal.”
The NSW government’s property tax proposal suggests that first-time home buyers could be able to enter the market as much as two-and-a-half years sooner if stamp duty was done away with and replaced with an opt-in annual property tax.
The new tax would be imposed on unimproved land value (ULV) – or, simply the value of a block of land before factoring in the residence built on it. Once a buyer opts in to the tax, the property will remain subject to the tax, no matter how many times it changes hands.
The proposal expects it will take 20 years for the property tax to cover half of all residential properties, with further take-up proceeding gradually in subsequent years.
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It’s a lengthy period that sparked concerns from both CA ANZ and CPA Australia in April, when early consideration of the proposal came to light.
Both the peak bodies said the long opt-in transition offered cause for concern because it would see property buyers faced with juggling three taxes concurrently: stamp duty, land tax and property tax.
NSW Treasurer Dominic Perrottet said, however, the proposal could offer major tax reform for the first time since the Howard government’s introduction of the goods and services tax in 2000.
“We are proposing a once-in-a-generation reform to make home ownership more affordable and achievable,” Mr Perrottet said.
“Making changes to the property tax system is highly complex, and we want to make sure we get this right.”
However, CA ANZ members say the proposal is light on detail, and more light could be shed on what the financial and distributional impacts of the proposal are, and how they affect the property market more generally.
“The financial and distributional modelling of this proposal (including underlying assumptions) needs to be released so that citizens can have a better understanding of how this proposal affects future revenue, productivity and property prices,” CA ANZ said.
The peak body also aired concerns over whether accountants will even be authorised to advise their clients on the tax.
“It is highly likely that people who buy property will turn to accountants for advice as to whether they should opt in to the property tax and the implications of buying a property that is subject to property tax,” the peak body said.
“The first question that accountants need [to be] answered is: ‘Will accountants be able to provide advice on state taxes?’ Currently an accountant’s ability to provide advice on state taxes is a grey area.”
In its submission, CA ANZ also pointed to the ways the proposal disproportionately favours owners of units and apartments.
“This is best illustrated by an example which uses real data for two properties which are located within a radius of six to seven kilometres that sold within seven days of each other for $1.7M. One is a unit and the other a house,” CA ANZ said.
“The stamp duty payable in relation to each of these properties is $78,067. In contrast, the property tax associated with these properties is very different.
“The new three-bedroom unit has an unimproved land value (UIV) of $105,924 and the older five-bedroom house has a UIV of $720,000.
“The unit will have an annual property tax of $717 ($400 + [105,952 x 0.3 per cent]) and the house will have an annual property tax of $2,560 ($400 + [720,000 x 0.3 per cent]) – more than 3.5 times that of the unit.”
CA ANZ said that if tax reform is evaluated through the lens of how efficient, equitable and little an administrative burden it imposes, the proposal’s disproportionate favour of unit owners is questionable.
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