INTHEBLACK July 2020 - Page 46



F E AT U R E
// S TA M P D U T Y
He points out that, as well as being an
unstable revenue source for governments,
stamp duty creates inefficiencies in the
housing market, because it is substantial and
can influence people’s decisions to sell and
buy property.
“It’s especially acutely felt by first home
buyers, because it massively adds to the kind
of deposit that’s required for people buying
their first homes,” Bryant says.
Retirees also can be reluctant to move
from their homes, knowing they will likely
need to pay out tens of thousands of dollars
in stamp duty when they make another
purchase, even though some states have
introduced concessional rates for pensioners.
However, there are already changes taking
place on the stamp duty front. In 2012, the
ACT government began a 20-year tax reform
program that will ultimately result in transfer
duties on property being abolished in favour
of higher annual property rates. In end-May
this year, the New South Wales government
announced a potential phasing out of stamp
duty as part of a broad taxation review.
Residential stamp duty rates have been
progressively reduced every year, and from
1 July 2018, duty was completely abolished
for all commercial property transactions of
A$1.5 million or less.
First home buyers in the ACT also no
longer have to pay stamp duty on property
transactions, as long as their household
income is less than A$160,000.
However, progressive reductions in
residential stamp duty in the ACT have
led to sharp increases in property rates to
compensate, with Canberra homeowners
facing average fee hikes of 7 per cent in
each of the next three financial years.
COMPARING PROPERTY TAX SYSTEMS
Australian governments considering
property tax reform may be able to take
something away from the systems in place
in other jurisdictions.
In Hong Kong, where a high percentage
of property is rented, owners are levied with
a 15 per cent flat property tax on the gross
annual rental income.
Similar to Australia, stamp duty is
levied on purchases on a sliding scale. For
residential, it ranges from 1.5 per cent
for transactions up to HK$2 million, to a
mix of set dollar amounts and additional
percentage fees for higher amounts.
The maximum rate is 8.5 per cent for
50 ITB July 2020
“THERE IS A MUCH
STRONGER CASE FOR
REMOVING STAMP
DUTY FOR OWNEROCCUPIERS THAN
THERE IS FOR
INVESTORS. STAMP
DUTY CAN HAVE A
USEFUL COUNTERCYCLICAL EFFECT
ON THE INVESTMENT
PROPERTY MARKET.”
DR GARETH BRYANT,
UNIVERSITY OF SYDNEY
transactions above HK$21.74 million.
Commercial transactions are assessed
on a different cost and percentage scale.
Danny Kwan, a tax partner with PwC
in Hong Kong, says there are a lot of
sensitivities in the market when it comes
to property taxes.
“Hong Kong is in a very strange situation.
There are a lot of retired people, and there
are a lot of tycoons who are holding most of
the land resources,” Kwan notes.
“The tax is very low, and there’s no capital
gains tax. Hong Kong attracted a lot of
investors, and people became rich when
they bought more and more properties.”
Kwan says this includes the “indigenous
people” living in Hong Kong villages, who
hold a lot of the agricultural land.
“These people have a vested interest
already with the Hong Kong property
market. A lot of the time, when the
government needs to increase the land
supply, it’s actually quite difficult to move,
because it’s not easy to find a piece of land.
That’s why the prices keep going up.”
In a bid to keep a lid on property prices,
rather than imposing higher taxes on
citizens, the Hong Kong Government
has focused its attention on deterring
foreign investors.
In 2010, the Hong Kong Government
introduced a 30 per cent transactional
tax for foreign buyers (known as Buyer’s
Stamp Duty), as well as further taxes
ranging from 10 to 20 per cent if a
property is sold within three years
(known as Special Stamp Duty).
This was largely aimed at curbing the
significant amount of offshore money
pouring into the country.
“Using tax, the government is already
affecting the property market, but it only
helps in deterring money from
the mainland,” Kwan says.
“Whether the government can use
another tax mechanism to change the
current situation will be very difficult,
because we are kind of at a crossroads on
whether we should maintain the capitalist
market driven by supply and demand.”
In Singapore, about 80 per cent of the
S$4 billion (A$4.3 billion) in property taxes
received by the government annually is from
commercial properties.
Property tax rates on residential properties
are applied on a progressive tax scale, with
owner-occupiers taxed between 4 per cent
and 16 per cent, depending on the assessed
annual rental value (ARV). No tax is
payable on the first S$8000 (A$8700).
That’s the situation for most of the
Singaporean population, who live in
subsidised public housing. Although they
receive an annual property tax bill from the
government, there is rarely anything to pay.
Residential property investors also pay tax
on a sliding scale, ranging from 10 per cent
to 20 per cent, depending on the ARV.
Stamp duty is payable on residential
transactions under a tiered system that caps
out at 4 per cent of the purchase price for
properties valued in excess of S$1 million
(A$1.1 million). All commercial properties
are taxed 10 per cent of the ARV.
“In so far as property tax is concerned,
the impact is not so great because
most people see property tax as a kind
of municipal charge,” says Leung Yew
Kwong, principal consultant at KPMG in
Singapore. “Because the amount is not a
lot, they’re not concerned by property tax
when they buy a property.
“Generally speaking, people are quite
prepared in their mind to pay the stamp
duty up to 4 per cent. The only problem
comes when you buy a second property.”
For second properties, the duty rate is far
higher, at 25 per cent, under what is known
as Additional Buyer Stamp Duty.
A POSSIBLE ROADMAP
FOR AUSTRALIA
Bryant advocates that Australian states
and territories move away from
transactional stamp duties towards
land-based taxation systems.
He explains that the first big advantage
of a land tax is that it is usually levied
on the unimproved, underlying value
of land, which does not discourage the
development of land.
“The second main reason in favour of land
tax is that it is progressive, so it is a way of
shifting our tax system towards one that
is taxing wealth, and therefore addressing
wealth inequalities.
“The third reason is that it is a more
stable source of revenue for the state
governments around Australia. That’s
because underlying land values tend to
be much more stable than housing prices
and the turnover of the housing market.”
However, he adds, there should be
a distinction between owner-occupiers
and investors.
“I think there is a much stronger case for
removing stamp duty for owner-occupiers
than there is for investors. Stamp duty can
have a useful counter-cyclical effect on the
investment property market.”
Bryant says that land tax is an untapped
source of revenue waiting for state
governments to draw upon, but politics
is the thing stopping them.
“That’s because the idea that there could
be a tax on the family home is something
that would leave state governments exposed
to serious political opposition,” he says.
“What would need to be done there is a
range of options to mitigate those problems,
to make it fairer and politically acceptable.”
This would include having higher land tax
for more expensive properties, having value
thresholds for when land tax comes into play,
and making sure there are arrangements for
people to defer their land tax if required.
“Ideally, coordination between state
governments would be crucial to the politics
of implementing this type of reform.”
intheblack.com July 2020 51

CPA Australia

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