Tax Cuts Good News For Home Buyers and Investors
Two tax cuts announced in the NSW State Budget will provide much needed respite for over-taxed home buyers and property investors.
The first is will see the abolition of mortgage duty on the purchase of an owner occupied residence from 1st September. This equates to a saving of $1,940 on a $500,000 mortgage or $1,140 on a $300,000 mortgage. On 1st July 2008 residential investment property purchases will also be exempt from mortgage duty and commercial investment properties on 1st July 2009 .
The second tax cut is a reduction in land tax payable by residential and commercial property investors. Land tax is currently levied on all land that is not the owners principal residence (farms are also exempt) such as investment properties, vacant land, holiday homes, commercial and industrial property. From the 2008 land tax year (from midnight , 31st December) land tax will be reduced from 1.7% to 1.6%. Also introduced is the three year averaging for land tax assessment. This involves adding the land value for the current tax year and the land values that applied for the two preceding tax years and calculating the average. The State Government believe the land tax changes will save NSW tax payers $211 million in 2007/08 and $1.32 billion over four years to 2010/11.
These tax cuts are a welcome relief. High house prices and excessive property taxes have seen a growing number of owner occupiers, particularly first home buyers, move interstate where housing is believed to be more affordable. According to info rmation recently released by the Real Estate Institute of NSW fewer young people aged 24 - 34 years own their own home than a decade ago. Home loan affordability is also at it's lowest levels since the index was established in 1984. In NSW approximately 37% of the family income is required to meet average loan repayments.
Further, high property taxes have long been a disincentive for property investors driving them to other investment options or to other states with more favourable tax regimes. This only exacerbates our growing rental crisis which has led to increased rents, making it even harder for first home buyers to save a deposit. Statisticians believe that many Generation Y's will never experience home ownership and remain a generation of renters.
These problems are not just restricted to NSW however and the Real Estate Institute of Australia is cal lin g on all levels of government to address these issues by:
:: appointing a Federal Ministerial portfolio for housing to develop a nation-wide housing strategy and establishing a housing affordability forum;
:: increase the First Home Owners Grant to $14,000 and provide further stamp duty concessions for first home buyers; and
:: remove or reduce inequitable taxes on wealth creation such as land tax and consider more equitable ways of raising taxes.
It's not bad news for everyone though as first home buyers start thinking outside the square. We are noticing more young people buying investment properties while they stay living at home with Mum and Dad. In the current market there is no shortage of tenants and the rent helps with the repayments. Sib lin g, singles and even families are buying property together to help ease the strain of high mortgage repayments. Where there is a will, there is always a way and there is no doubt these tax cuts will provide some respite.
For more on the abolition of mortgage duty and the land tax cuts we suggest you visit the Office of State Revenue website ( www.osr.nsw.gov.au ) or give them a call on 1300 139 816.