What is in store for Australia’s taxation framework?

The-government-is-planning-changes-to-the-tax-system-_157_6008345_0_14091465_300Tax is a necessary cost of buying, selling or investing in property in Australia. Whether its a levy on the price of the property, or an additional charge when you take out a home loan, there are a number of taxes that need to be paid. The federal government is making some headway towards changes in the country’s tax structure however, following the release of its Tax Discussion Paper on March 30.

Treasurer Joe Hockey announced that the government would be seeking submissions from the community over the coming months to determine the future of the country’s tax structure. Mr Hockey noted that the 2015 Intergenerational Report raised some interesting challenges for what role taxes would play in the future, particularly as Australia’s demographic profile is changing so dramatically over the next 40 years.

“The problem we face is that our current tax system, which was designed before the 1950s, is ill-suited to the 2050s,” Mr Hockey said.

Changing face of tax

Over 37 per cent of the government’s tax revenue is collected from indirect taxation, which includes GST, excise and customs duties, as well as property taxes. Any reform could have number of implications for the housing industry – and affordability is the key.

Anyone buying a home in Australia will be slapped with a substantial fee on the purchase price, called a stamp duty. This varies from state to state, but in New South Wales, stamp duty can often raise the price of buying a home. For example, for properties valued between $300,001 and $1 million, the duty on transferring land to another party costs an additional $8,990, plus $4.50 for every $100 above the figure of $300,000.

The significant sum to buy into or move from a property could explain recent CoreLogic estimations. Research shows that Australian homeowners are holding onto their properties longer than ever before, with this being particularly apparent in Sydney. Across the capital cities, homes were held onto for an average of 10.5 years in 2014 – a big jump from 6.8 years a decade ago. Units were owned for slightly less time – 8.7 years – but this is still higher than even 12 months before, when these properties were owned for 8.4 years.

In the Harbour City, people are owning their houses for an average of 11.2 years and units for 8.5 years. This is a similarly significant jump up from the average 7.3-year hold period back in 2004 for detached houses, and only 6 years for apartments.

“Charges levied on the sale price such as stamp duty and agent commissions no doubt act as a disincentive for home owners to move on a more regular basis or alternatively move to more appropriate accommodation as their needs evolve over time,” the report stated.

A more affordable marketplace

The Tax Discussion Paper also noted that stamp duties are one of the most ineffective taxes. For this reason, this step towards reform has been widely welcomed by industry commentators. Removing or updating inefficient levies could reduce some of the tax burden that homebuyers and vendors bear, and therefore boost activity in the housing market.

HIA Managing Director Shane Goodwin said housing will play a crucial role in any future changes to Australia’s tax structure. Already, state and territory governments gathered around 24 per cent of their tax revenue from stamp duty on commercial and residential property sales over 2013-2014.

“Stamp duty on property conveyances is Australia’s most inefficient tax, and housing taxation reform can unlock substantial productivity gains and boost economic growth in the Australian economy,” he said in a March 30 statement.

Policy outcomes of this the discussion paper won’t be seen until 2016, but the signs are looking positive for the housing market. If the government can reduce the amount of tax paid in the property sector, homeowners, prospective buyers and investors could all find themselves in a better position.

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