How to Understand The Purpose of Stamp Duty?

FutureTech on 16/01/2020 - 16:54
Last edited 16/01/2020 - 18:02 by 1 other user

A somewhat random question I had today…

Internet says "It is designed to cover the cost of the legal documents for the transaction. " but given that stamp duty on transfer of a typical property would be tens of thousands of dollars there's no way the registration of the transfer of title costs the government that much?

It's also a percentage levied on the total price of the property so it has nothing to do with how much profit is made on the transfer (CGT takes care of that)

If it's just a money grabbing scheme why is there no stamp duty if I buy say a laptop from someone - is it just because the transfer of the ownership of a laptop is not required to be registered with the state government? If so why would this matter when the amount of the stamp duty is not linked to the cost of the legal documents and administration for the registration in any way (ie it wouldn't cost the government more to manage the transfer of a property with higher value compared to a cheaper one, would it?)

I just gave this some thought and couldn't make sense of it so wanted to hear what you guys think the purpose of stamp duty is.

Financial

Comments

  • wiipantz on 16/01/2020 - 16:58
    +23

    Tax on a Tax mate. Once a tax is in it's very hard to get out, this one has been around a while… total money grab. Welcome to Australia, Money please.

  • elgrande on 16/01/2020 - 16:58
    +15

    Purpose = way for state to directly tax you whilst complying with the constitution.

  • HighAndDry on 16/01/2020 - 17:00
    +13

    Government wants money, government takes money. Easy as that.

    • outlander on 16/01/2020 - 17:28
      +2

      A government is just a body of people, most notably un-governered.

      • HighAndDry on 16/01/2020 - 18:01

        Haha yup. An individual can be intelligent. A group of people invariably devolves into a mob.

        Democracy at its core is just mob rule. And what does the mob love? Taking money from others.

  • spackbace on 16/01/2020 - 17:01
    +2

    As above, tax = money grab

    Just look at the varying car stamp duty rates around the country

  • FutureTech on 16/01/2020 - 17:06
    +2

    Looks like everyone thinks it's a money grab - thanks guys for the replies

  • EightImmortals on 16/01/2020 - 17:07
    +9

    It's another leftover tax that the government 'promised' (wink wink) to remove once we let them impose the GST all those years ago. Any day now though……..

    • orangetrain on 16/01/2020 - 17:55

      Which government was this?

      • EightImmortals on 16/01/2020 - 18:03
        +5

        There is only one government. :) But if you mean 'which party' iirc it was both.

        Here;s some more reading for you.

        https://www.theage.com.au/national/getting-to-the-bottom-of-…

        The relevant part:

        The Howard Government's original plan for the GST envisaged the states abolishing a swag of financial taxes, which in effect would be replaced by the GST. They included:

        The financial institutions duty.
The bank accounts debits tax.
The NSW accommodation tax.
Conveyancing duties on transfer of business property.
A range of other stamp duties on leases, mortgages, sales of shares, cheques and credit arrangements.

        Then came the GST deal with the Democrats, which removed the GST on food, knocking a big hole in the revenue forecasts. The Democrats proposed that it be filled by paring back the income tax cuts and increasing taxes on petrol — thereby leaving the original agreement with the states intact.

        Howard and Costello chose a different course. They decided to keep the states' stamp duties to pay for the lower GST collections. Under the new deal announced by Howard on May 31, 1999, just three state taxes were earmarked for immediate abolition: the financial institutions duty, the accommodation tax and the stamp duty on transfer of shares. A fourth tax, the bank accounts debits tax (dubbed the BAD tax) would be removed from July 1, 2005.

        But removal of all the stamp duties, including conveyancing duties on business property, were deferred indefinitely.

        Otherwise, under the agreement, the Commonwealth would have had to underwrite the costs of abolishing them if GST revenue fell short — something it was unwilling to do.

        Despite Costello's claims, the agreement signed by Howard and the premiers in June 1999 did not commit the states to abolish any stamp duties. Section 5 (vii) stated specifically:

        "The Ministerial Council will by 2005 review the need for retention of stamp duty on non-residential conveyances; leases; mortgages, debentures, bonds and other loan securities; credit arrangements, instalment purchase arrangements and rental arrangements; and on cheques, bills of exchange, promissory notes; and unquoted marketable securities."

        So after reading that a few things were chopped and changed (not least my memory of events from 20 years ago :) ). Now there is talk of abolishing stamp duty ID we let them raise the GST that was "never ever ever going past 10%' . Cheers

        • Freitag on 18/01/2020 - 15:03

          They should have kept GST on things like fresh food, education and healthcare. The poorest people tend not to buy fresh food or spend big on healthcare and education, the rich however do, so applying the GST to those items would have acted as a progressive tax in my opinion and not having GST on those items benefits the well off far more than the poor.

          • whooah1979 on 18/01/2020 - 15:12

            @Freitag: That's right. We should remove GST on KFC, Krispy Kreme, McDonalds, hot chips, soft drinks, etc.

    • wiipantz on 17/01/2020 - 11:58

      Fingies crossed!

  • tsunamisurfer on 16/01/2020 - 17:21
    +6

    If it were to cover the cost of government admin it would not be levied on the value of the home, and be a few hundred dollars at most.

    Stamp Duty is one of the worst taxes even the WA treasurer said so but they need it.

    I still feel sick giving $50k to the state coffers especially working shortly in the public service and seeing how they waste money in IT projects.

    • EightImmortals on 16/01/2020 - 17:29

      50K? I assume that income tax and not stamp duty?

      • tsunamisurfer on 16/01/2020 - 17:30

        Stamp Duty only.

        • EightImmortals on 16/01/2020 - 17:54

          Ouch! I thought it was capped? Or was it from multiple purchases?

          • HighAndDry on 16/01/2020 - 18:02

            @EightImmortals: A cap on stamp duty? Hahaha not in any state I'm aware of. I've known people be slugged millions in stamp duty.

    • whooah1979 on 16/01/2020 - 18:24
      -6

      Anyone that can afford to pay $1m for a property can afford the stamp duty that goes with it.

      • spiff on 16/01/2020 - 19:00
        +4

        Pretty strange statement to make. Would you say the same for $30k stamp duty on an $800k property? Or $14k stamp duty on a $500k property or $7k stamp duty on a $250k property? Still doesn't take away from the baseless rationale for this tax other than revenue raising. Assuming the property is $1m and you had $200k saved, that $50k coming out to cover stamp duty would result in you having to pay another $12k in LMI.

        • whooah1979 on 16/01/2020 - 19:13
          +1

          revenue raising.

          The revenue collected from stamp duty helps our state to provide the services and infrastructure we need. We would not have a problem paying $50,000 in stamp duty if that meant that we could afford a $1 million home.

          • tsunamisurfer on 16/01/2020 - 19:39

            @whooah1979: People love saying this same shit all the time.

            If I could afford this house, I would happily pay this tax.
            If I made this money I would happily pay this tax.

            $50k is still $50k.

            I can't explain to you how it feels to lose that much for nothing.

        • whooah1979 on 16/01/2020 - 19:16
          +1

          Assuming the property is $1m and you had $200k

          Someone that borrows $800,000 is doing it by choice. Only borrow what you can afford to pay back.

          • spiff on 16/01/2020 - 19:27

            @whooah1979: I see from your replies that you're unable to focus on one point to debate, instead swinging from one issue to the next. Explains a lot. I won't bother.

      • BobCobb on 09/02/2020 - 08:53

        In case anyone was wondering the typical Aussie battler has emerged.

  • Seraphin7 on 16/01/2020 - 17:23
    +3

    If it's just a money grabbing scheme

    It is.

    /thread

  • abb on 16/01/2020 - 17:25
    +2

    it wouldn't cost the government more to manage the transfer of a property with higher value compared to a cheaper one, would it?

    No, but taxes are often structured such that richer people pay more than poorer people. (The technical term for this is 'progressive')

    A lot of people think a land value tax [1] would be better, but since that would reduce land values, it's politically untenable.

    1. for everyone, it does currently exist for some investors
    • HighAndDry on 16/01/2020 - 18:05

      There's already land tax that is calculated on land value…

      Plus, a tax based on land value would be a wealth (net worth) tax instead of an income based one, which would have horrific consequences - eg. Pensioners in gentrified areas having to sell because they can't afford the tax (no income, high value ppty), and unable to buy a home anywhere else because no income to borrow on.

      • abb on 17/01/2020 - 13:48

        There is, and I did say:

        it does currently exist for some investors

        There are arguments for and against, of course. I tend to favour an ongoing value-based tax over a transaction tax because it improves liquidity and discourages unproductive hoarding.

        Being a comment in a dead thread on a shopping forum, detailed analysis is left as an exercise for taxation system review experts - for example, https://www.abc.net.au/news/2019-12-23/henry-tax-review-ten-…

      • BobLim on 18/01/2020 - 00:01

        Pensioners in gentrified areas having to sell because they can't afford the tax

        Lots of ways to avoid these kind of outcomes (I don't think it's horrific at all anyway). It could be accrued and payable only on sale, or the value assessed at time of acquisition plus nominal annual inflation on the tax. Presumably all these pensioners have no trouble paying rates currently?

        Hopefully the intent of such a tax would be to discourage inefficient land use, so Nana holding onto her huge property in the inner suburbs isn't really ideal - perhaps she could get some boarders in there to help cover the cost of this tax, or sell and buy somewhere more suitable? If the property value has increased so much, why would a loan be needed to buy something else?

        How much do you think this would even be, if the intent is to raise the same amount as current annual Stamp Duty revenue, distributed across all households in the state instead of just those transferring a property during the year?

  • outlander on 16/01/2020 - 17:26
    +5

    People notice when you take things from them all at once. But do it here and there, a little at a time.. its much easier to sneak it past.

  • Nutrino on 16/01/2020 - 17:27
    +1

    the more ppl flip a house, the more gravy they make. easy money.

  • thatonethere on 16/01/2020 - 18:00
    +2

    In ACT they are removing stamp duty gradually but instead of relying on GST redistribution they are increasing annual rates.

    Would have preferred the stamp duty…

    • xylarr on 17/01/2020 - 13:01
      +3

      This is how it should be done in all states. Bring in a land tax - you pay each year, or if you're a pensioner living in a mansion, you can just accumulate it and it gets paid when sold/transferred.
      The economists love land taxes - they can't be avoided (by not moving), and they are steady year on year.
      It means people can choose to move easily - no $30K down the drain each move. I suspect the real estate agents would love it.

  • Dr Prepper on 16/01/2020 - 18:37
    +5

    For most state governments it is a major source of revenue. Also governments do not want people to hoard properties by transferring to their children or other entities they own as land empires and powerful rentier classes are harmful to the states.

  • whooah1979 on 16/01/2020 - 18:41
    -3

    The more someone can afford to pay for a property the more they pay in taxes. That is a fair way to collect taxes.

    • spiff on 16/01/2020 - 19:01
      +1

      Being a progressive tax doesn't mean it's a reasonable or warranted one.

      • whooah1979 on 16/01/2020 - 19:07
        +1

        A stamp duty that is progressive is better than an income tax system that is progressive.

  • Ocker on 16/01/2020 - 18:52

    The "stamp duty" in the examples you cite is not stamp duty per-se, rather an ad-volarem duty, viz a duty or tax based on the value of the transaction

  • Bob Svargis on 17/01/2020 - 08:29
    -1

    How do State Governments pay for schools? Hospitals? Police? Fire brigades? Main roads?

    Unfortunately, Australia was split into States at Federation. I recall John Howard stating that if Australia were founded today, they probably wouldn't have State Governments (I'm assuming that they'd give more power to local/regional Governments to make up for it).

    Think of the State Governments as being like that middle layer of management. Someone still has to pay for them to be there and you can't get rid of them. Hence, stamp duty.

    • xylarr on 17/01/2020 - 13:02
      +1

      Effectively we need what you might call state government rates.

    • FutureTech on 17/01/2020 - 13:24
      +1

      I understand that State governments need money to function however I am not sure I get why it has to be linked to the purchase of real estates. I can live my life renting and invest exclusively in shares/crypto etc without paying one cent in stamp duty, whereas some other guy invests exclusively in real estate and pays hundreds of thousands in stamp duty. How is it fair that he has to contribute much more to the State government than me while we are essentially same rich and receive essentially the same services (education, hospitals, roads etc)?

  • Myone888 on 17/01/2020 - 10:48

    When I moved interstate I had to sell my house and bought in my current state. thus I paid a lot dor stamp duty too. The Govt shud give tax rebates for interstate moves.

    • xylarr on 17/01/2020 - 13:03

      And for intra-state moves? I moved suburbs and copped 30 grand.

      • Donaldhump on 18/01/2020 - 16:11

        just move from State A to State B for 3 months then back to State A:)

        works well if you live in tweed heads or a border town

  • windale on 17/01/2020 - 21:29

    What about the death tax, you had to pay stamp duty to die. It was something like 16% of your super.

    • Donaldhump on 18/01/2020 - 16:12

      yes this is dumb, all people on their death beds are better off withdrawing all super then it is tax free, unfortunatly its not the most appropriate things to tell you parents when they have 1 week of life left

  • nurbsenvi on 17/01/2020 - 21:32

    Keep you enslaved that's the concept.

    Remember 50% of what you earn will eventually be given away to ATO

    Every time you buy something there is some hidden tax in there

    Stamp Duty
    GST
    Patrol tax
    Import Duty
    Council rate (council is government too you know?)
    Water rate
    Land Tax
    Superannuation fee ($1000+ a year)
    Car Registration

    You are (profanity) if you pay everything Taxman asks.

  • SlavOz on 17/01/2020 - 22:13
    +3

    I understand its a tax grab, but I fully support taxes. I've seen countries where taxes are very loosely enforced and can be dodged quite easily. Notably, these places don't have nearly as much public infrastructure or reliability. I get it - we need taxes to run the country. But unlike many areas of tax, it doesn't sound like stamp duty actually benefits those who pay it. It's like it gets redistributed all over the place without actually going back into the system it came from.

    Look at the news recently at how many peoples lives are ruined for purchasing a dodgy apartment that is now falling apart due to faulty building. What is the Govt doing about it? Nothing. They don't care. They collected at least 30k from every resident that bought an apartment in these towers and with all that money they didn't invest a single cent in a system of quality control or enforced liability. Despicable. Is the Govt going to chip in to save hundreds of innocent, stamp duty paying people from destroyed lives? Nope. They're keeping that money for themselves.

  • berry580 on 18/01/2020 - 15:45
    +1

    All duties and tax involving being am income source for the government.
    It also has another purpose to it, it helps stabilise the housing market by being a deterrent on speculative trading.

  • Donaldhump on 18/01/2020 - 16:07

    same reason pokies exist, and smoking isnt banned… revenue earner, for state government who from my brief time there is a giant cluster **** of money wastage

    i would love one day that stamp duty is just implemented as land tax or something (they would probly make more in the long run), people have no ability to move without incurring loads of costs, retirees won't downgrade (unsure if there is relief here).

  • richmond12 on 18/01/2020 - 17:04

    Not sure how they could change stamp duty, people will cry fowl if they had paid and the next week it was gone.. how would you implement this?

    • ectogammat on 18/01/2020 - 17:52

      Stamp duty rules change pretty often (see below for a few examples in Victoria), and there will be those who miss out on changes which reduce or eliminate any stamp duty liability, and those who get caught under new taxes/increase in rates/narrowing of exemptions/concessions. There may be transitional rules that may soften the blow for certain people in certain circumstances. But often it may be just tough luck for others who miss out either way, which is unfortunate. At the end of the day, this is in essence legislative risk.

      Examples of various changes in Vic over last 5 years or so:
      - foreign duty surcharge of 3% from 2015
      - increase in foreign duty surcharge to 7% from 2016
      - first home buyer exemption or concession from 2017
      - narrowing of off-the-plan concession from 2017
      - new partnership duty rules from 2018
      - conversion of full exemption for corporate restructures to a 90% discount only from 2019
      - concessions for transfers of commercial/industrial properties in regional Vic from 2019
      - increase in foreign duty surcharge to 8% from 2019

    • BobLim on 19/01/2020 - 18:28

      Give them a credit for stamp duty paid against future land tax liability, indexed to inflation

    • SlavOz on 10/02/2020 - 08:50

      That's life. How do you justify people having to pay $900k for a property that will barely increase in value, while the original owner purchased it for $300k some years prior? Its all about luck and timing. That's the only reason we have so many comfortable home owners or early retirees these days. If I was born a few years earlier I'd likely be in a much better position right around now as I would've been able to snatch up a good bargain with my income. Oh well.

  • NigelPearson on 18/01/2020 - 17:49
    +1

    The deed for my grandmother's house actually has 5 stamps on the back, which was the stamp duty back in the 1930s!

    I don't think it was proportional to the property value back then

  • trapper on 22/01/2020 - 12:48

    State government's can't levy income tax or GST so they need more creative ways to get tax - like stamp duty.

  • niagraBozO on 10/02/2020 - 11:13

    I Look at Stamp duty as a cost of the government having to make a rubber stamp and pay for all the ink as well as a person to stamp every page.

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