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An alternative approach to a traditional tax is being proposed for the Sydney property market

Stamp duty can act as a big financial barrier to home ownership, particularly for those looking to enter the market for the first time.

Recently, the New South Wales state government has announced a plan to change the way tax is paid on property.

The new arrangements will give people the option to choose between the current system of paying stamp duty when buying a property, or instead paying a smaller annual property tax for as long as they own the property.

If implemented, the proposed changes could give the freedom to choose between paying stamp duty or paying a much smaller annual property tax, when you buy your next property.

The proposed approach has interesting attributes though. Once a buyer has opted in, future buyers of that property won’t be able to opt out. They will pay land tax instead of stamp duty for the duration of their ownership.

This suggested tax the potential to be fantastic for those that see themselves owning the property for a short scope of time. By only keeping the property for that shorter amount of time and paying the proposed land tax, they would potentially save themselves many thousands of dollars compared to if they had paid stamp duty on the purchase.

Conversely, if you bought a property and planned to own it for a long period of time, it could be beneficial to actually pay stamp duty as a one-off payment as with time a continued tax would overtake the amount paid on stamp duty.

This proposed change could be of big aid for NSW residents when taking the big financial step of buying a home. New buyers would have extra money to spend on their purchase.

Unless you are buying a property though, there would be no change. If stamp duty has already been paid on your existing property, you won’t pay or have the choice to pay the proposed annual property tax.

Read more about the property tax proposal for New South Wales.