The stamp duty paradox

​Stamp duty in most places is calculated on a progressive scale which means the higher the price the higher the duty in both total dollar and percentage terms.

If you bought a $300,000 property in NSW, the stamp duty would be $8,990. Let’s say you had a lazy $3 million to deploy and bought 10 of those at $300,000 each, the total duty would be $89,900.

Note: there is a provision for the Office of State Revenue to aggregate the total in some circumstances but go with me and assume that doesn’t apply in this case.

If you opted instead to buy a single property for $3 million, the stamp duty would be, wait for it, a whopping $150,490. A difference of $60,590. Wow. By way of reality check, that difference is approaching a whole years income for the average Australian family. Serious money.

Yet another good reason to stick to median or below median price points for individual residential investments.

But that’s not the paradox. That’s just the mathematics of a progressive scale and me making a point.

The real issue with stamp duty is the current rates were set years ago when inflation and capital appreciation rates were higher than they are in this low inflation environment and median values were a lot less than they are today. The scales haven’t changed since 1986.

During the 26 years to 2013, Sydney’s median house price has increased at 7.7% per annum compound. The stamp duty collected on the transfer (sale) of a median priced house in Sydney increased at 9.9% per annum compound over the same period. The result of a progressive scale and increasing values.

In 1986 stamp duty averaged (on the median priced Sydney house) around 2% of purchase price, today it is around 4%. What we have here is a form of bracket creep against a backdrop of lower inflation.

Maybe it’s not quite a paradox but it is an issue that deserves some attention. There are voices out there calling for a review of the situation, which is clearly long overdue. In NSW another State Budget has come and gone and despite changes to the first home buyer rules and the dropping of rebates to investors, no change has been made to the stamp duty scales. I wouldn’t hold my breath waiting for the scales to change any time soon.

In the meantime, remember the $300,000 example and buy new, buy low and buy often.

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