On the 29th of May, Prime Minister Scott Morrison announced the abolition of Councils of Australian Governments (COAG). The COAG is responsible for creating policies that require cooperation of Australian governments, such as efficient tax reforms.
The Prime Minister transferred this duty of COAG to the National Cabinet of chief ministers following the abolition. The chief ministers will work with state treasurers and the Council on Federal Financial Relations.
Reforms Under Discussion
Right now, state treasurers are overhauling the stamp duty tax. As of today, the stamp duty imposes a one-off hefty tax liability on homebuyers at the state level.
This imposition discourages people from buying their homes. Furthermore, it prevents workers from moving closer to their jobs.
Tax Reform Proponents
The proponent of this tax overhaul is David Thodey, a former boss in Telstra. He says that the stamp duty isn’t a sustainable source of revenue for the country.
Also, John Freebairn, who is part of Thodey’s team, argues that the stamp duty tax is unfair. It collects taxes on new homebuyers but not those homeowners who never move.
Aim of the Tax Reform
The tax reform introduces a new system where taxpayers will pay an annual land tax. The new system allows homebuyers to choose between opt-in and tax credits on a sliding scale.
Effects of Abolished Stamp Duty
The abolished stamp duty requires a tax accountant to compute the capital gains tax differently.
Seller’s Point of View
The stamp duty is part of the capital cost of a taxpayer (the home seller). Deduct the capital cost and other related costs from the selling price to get the net capital gains.
Capital gain in selling a home is part of the income tax computation and not a separate one. So, if the government removes stamp duty, a taxpayer will have a higher income base and pay a higher income tax.
However, if the sold property is a primary residence, the tax accountant can ignore capital gains tax. The sale is an exempt transaction under CGT, provided the seller satisfies all criteria.
Buyer’s Point of View
On the flip side, homebuyers benefit from abolishing stamped duty by way of a lowered selling price. If the reform pushes through, homebuyers don’t shoulder the stamp duty anymore.
The tax reform on stamp duty will be a significant change in Australia. The tax bill may take months to finalise. While waiting, you can educate yourself on the implications of the tax reform.
If you need tax advice on home buying or home selling, Sphere Accountants & Advisors , have a team of tax accountants who can help you. Give us a call and we would be more than happy to discuss how the stamp duty reform can benefit you.