The balancing act of taxation

It should be acknowledged that a population wanting its government to deliver decent infrastructure and services including social security and health benefits must recognise all of these have to be funded. So, we might sigh about paying taxes but we should respect the need for appropriate taxation.

The difficult bit is to determine what is appropriate taxation and what is unreasonably burdensome and harmful to the majority.

The NSW treasurer has been champing at the bit to reform NSW tax laws. He was interested in reviving the hugely unpopular death duty phased out between 1977-1980 which was quite a burden for estates. This proposal also was apparently supported by the Greens and flirted with by other political parties of various stipes from time to time.

How do we raise money for governing? Do we increase taxes?  Is that always the answer??

Federal Taxes

We pay income tax and all GST to the federal government.

GST paid to the Commonwealth is distributed back to the states but not in proportion to the amounts collected state by state but on what could be termed a needs basis, which does not make all states happy. So, states want to have other additional ways of funding.

The levying of GST was meant to be the great reform to simplify taxes with states being asked to relinquish some of their then existing taxes often imposed as ‘stamp duties’. It took a while but some duties (taxes) were removed over time such as mortgage duty.

But states still conduct their own taxation by the various State Revenue Offices and impose their own various tax systems.

You might remember a former PM said with respect to the introduction of GST “there would never be a tax on a tax“.

Well surprise, surprise, there is frequently a tax on a tax with our state & federal taxing systems. We pay the federal GST on various products, which already include levies and state duties. Do you ever look at how your car or house insurance bill is constructed and have you ever considered how the final price at the petrol pump is worked out? Yes, levies and state taxes are imposed on the raw price with GST on top.

NSW housing proposed change to transfer duty (stamp duty)

Stamp duty is referred to as Transfer Duty when applied to the purchase of real property (land and houses).

Now there is being floated for 2021 the idea of a removing the upfront payment of transfer duty and instead imposing an annual property tax that is charged on a house or land forever, instead of a one-off stamp duty payment on purchase.

Of course, the details have not been revealed so we don’t know for sure what is planned but it is worthwhile thinking about what it might mean. Remember the old saying ‘The Devil is in the detail’?

The proposed property tax would be in addition to Council Rates and possibly also land tax when it is incurred on investment properties. If you live in a strata complex you also must pay your annual strata levies. Council Rates. Levies and property tax would mean three lots of overheads purely related to the ownership of your home, without counting water rates and utility bills such as electricity.

What is transfer duty?

Transfer duty is the one-off tax you pay to the State government on the purchase of land or houses. The amount of the duty payable is scaled according to the value of the property. You would on average pay less for buying a property in most rural or regional areas than you would pay buying a property in the city. There are also   what are termed ‘premium properties’ which are taxed at a higher rate in respect of the one-off transfer duty. In addition, there is a surcharge duty for foreign purchasers.

A person buying in a large regional centre in NSW would expect to pay a lower averaged purchase price than a person buying a property of an equivalent standard in most suburbs of Sydney.

What is Land Tax?

Land Tax is a state tax imposed on the unimproved capital value of non-exempt land based on your ownership of land as at the 31 December in any preceding year. So, for 2021, the value of your landholdings as at 31/12/2020 is relevant. What is non-exempt? There is a threshold before the tax is incurred and it is only based on the land not the buildings on the land. There are several exemptions to the requirement to pay land tax including importantly your principal place of residence.

One off lump sum transfer duty at time of purchase or annual fee?

Why would the NSW Treasurer want to swap a one-off Transfer duty lump sum payment for the equivalent of a universal land tax?

Is this proposal just another tax gouge insidiously increasing overheads people already pay in annual rates and when applicable land tax on investments?

Reasons offered

  • FOR The government would argue:  A PROPERTY TAX would steady the tax revenue received each year and wouldn’t collapse during a recession or house price collapse. The government might merge both the duty and the land tax, if applicable, into the one property tax.

AGAINST: Would it though? If during a recession people lose their jobs but still have mortgages and rates to pay and ordinary household expenses, would the extra property tax slug be the straw that financially broke the camel’s back? Would we see a sub-prime crisis such as hit the US a few years ago with hundreds of people unable to support the cost of their homes?

  • FOR: It will encourage downsizers to sell their too big home and buy something smaller, freeing up these bigger homes for families.

AGAINST Would it though? Why would the average older person downsize from a house on which they already paid duty at time of purchase to incur   increased overheads in retirement years – Most downsizers are wanting to free up income for cost of living. A one-off budgeted payment of duty is ‘done and dusted’ comparative to an annual property tax in addition to rates, strata levies etc.  Would an anticipated increase in annual overheads make a downsize exercise worthwhile? If you are on a budget from super or a pension your cost of overheads will be increased annually and will you be able to afford the increase? Why would you want to move if it increased your overheads?

One commentator on television said old people retiring won’t care because they will not be in their new homes for long as it is likely they will have to go to nursing homes or retirement homes or leave their homes permanently for other reasons [she inferred they will soon shuffle off this mortal coil].

Really???? And why would anyone think forcing people out of their homes to nursing homes is the ultimate solution for retirement years in any society!

Plus has anyone looked around the cities these days where properties are so expensive. Many older houseowners are accommodating intergenerational family members.

  • FOR Potentially, more revenue would be collected over time.

AGAINST Definitely it’s a revised tax plan with an end result that the government could obtain a steady flow of money from the housing market forever instead of a one-off lump sum on each purchase. Hang on, people already pay rates annually and investors pay land tax annually so is this a further additional tax that will go on forever without the government having to do anything except hold out their hand! The government website does suggest their proposal could give property buyers the freedom to choose either to pay stamp duty and land tax (where applicable) or to pay an annual property tax encompassing both but it is unclear that if implemented there would be a choice.

  • FOR It could increase the opportunity for first homebuyers and others to buy into property as it will reduce the initial outlay.

The government floated plan is to remove the first home owner scheme and maybe give a grant of $25,000.00 so first homeowners can spend on anything they like. The woman on TV said it would probably go on furniture and help business that way.


Will first home owners be happy to get a one-off grant for ‘life style’ but bear the ongoing burden of an annual property tax bill plus rates and if applicable strata levies, plus other utilities etc. Will they be left better off?

Arguably young families will struggle even more unless there are two full time wage earners.

  • FOR It could encourage more building of new homes, which brings more economic activity.

AGAINST Would it?

Developers pay duty on acquiring land but not the house plus land and they have tax offsets.

Investors pay land tax already on land above a certain threshold so that an increase in overheads with an additional property tax is likely to be a disincentive to investing and therefore a disincentive to development and available leasehold property.

Any state tax might be a deduction against income for annual taxation but you still have to be able to afford the payments and you want a reasonable profit margin after tax to make an investment worthwhile.

  • FOR The commentator on television said it was great for those who wanted to ‘flip’ homes regularly as they would never be hit with the big one-off payment. [To flip apparently being a buzz word for regularly selling and buying houses]. Possibly she believed this would stimulate the economy. The government income from property tax might or might not be affected by flippers.

AGAINST Those who can afford to ‘flip’ homes regularly might be those with a better pay packet wanting to be upwardly mobile or wanting to make capital gain through   renovating and selling their homes.

Increasing annual overheads would be more burdensome for those who have a tight budget than for those with higher disposable income or greater capital assets. A one-off payment at purchase is significant but may be preferred instead of annual fees adding to the list of already extensive property overheads (such as council and water rates, insurances, utilities, repairs and maintenance, etc)

Presumably once introduced we could not be sure the property tax would remain fixed but annually the government might want to review the rate of the annual property taxation and introduce incremental increases.

Alternatively, if there is not an incremental increase annually at the very least on sale an increase would be triggered for the next owner which also means if you sell and intend to purchase a substitute property you have to factor in whether you can afford that annual fee on the new property you wish to acquire.

  • FOR It may work out a lot better for intending purchasers than paying interest on a higher mortgage. Higher borrowings might be necessary to fund a significant lump sum transfer duty. This could especially be the case for higher value properties when the total transfer duty paid at the time of purchase can be eye watering.

AGAINST Would this change in taxation just be imposed on purchases of property going forward?


Potentially could the government plan eventually impose the property tax on all existing property even those who paid duty years ago?  Either way this is no guaranteed incentive to downsize.

So, tax ‘reform’ is in the air – who knows where it will lead us.

This article is intended to bring to your attention information about issues that are currently under consideration in NSW in relation to the way taxes are or might be in the future levied on the purchase of property. To know more you can always look at

If you or someone you know wants more information or needs help or advice, please contact us on 02 9699 9877 or email [email protected].