For most home buyers, stamp duty is the single biggest cost on top of the purchase price. Here’s how it works, how first home buyers can avoid it, and why so many economists want it gone.
Stamp duty, officially called transfer or land transfer duty in most states, is a tax paid when you buy property, including homes, investment properties and land.
It’s charged by state and territory governments, not the Federal Government, so the rates and rules are different in each state.
How it’s calculated
Stamp duty is calculated on the purchase price, or the property’s value if that’s higher, using a sliding scale. The higher the price, the higher the rate on each extra dollar, so duty rises quickly on more expensive homes.
On a median-priced home in Sydney or Melbourne, stamp duty can easily run to $40,000 or more. It usually must be paid within a few weeks of settlement, and generally can’t be added to a home loan in the same way as the deposit, so buyers need it in cash.
Foreign buyers pay an extra surcharge in most states.
First home buyer concessions
Most states offer first home buyers an exemption from stamp duty, or a discount, up to certain price limits. Some also offer concessions for buying newly built homes or off-the-plan apartments.
The thresholds and conditions vary widely and change often, so buyers should check their state revenue office’s website.
Why economists dislike it
Economists from across the political spectrum, including the Productivity Commission, have long argued stamp duty is one of Australia’s most inefficient taxes.
Because it’s charged every time a property is sold, it discourages people from moving. Older people may stay in homes too big for their needs, and workers may turn down jobs that would require them to move, because the cost of selling and buying again is so high.
It’s also an unstable source of revenue for states, rising and falling with the property market.
The alternative: land tax
The most common proposal is to replace stamp duty with a broad annual land tax, paid by all landowners each year based on the value of their land.
The ACT began phasing out stamp duty in 2012, gradually reducing it while increasing general rates, in a transition planned to take about 20 years.
New South Wales briefly offered first home buyers the option of paying an annual property tax instead of stamp duty, but the scheme was scrapped in 2023 after a change of government.
The main obstacle is the transition. States rely heavily on stamp duty revenue, and people who have recently paid stamp duty would object to paying an annual land tax as well. That’s why proposals usually involve switching gradually, for example applying the new system only when properties are next sold.
