Buying, selling, or restructuring property in Australia can involve more than the purchase price and mortgage. State-based taxes such as stamp duty and land tax can have a significant impact on the overall cost of owning and transferring property.

In this episode of The CEO Breakdown, John Saade discussed the problems created by Australia’s reliance on stamp duty, particularly when businesses and property owners are restructuring their affairs. He also explained why he believes recurring land-based taxation could be a more efficient alternative to transaction-based stamp duty.

For property owners and investors, understanding the difference between these two taxes is important. They operate differently, can apply at different times and vary between Australian states and territories.

What Is Stamp Duty?

Stamp duty, also known as transfer duty in some jurisdictions, is generally a state or territory tax imposed on certain transactions.

For property owners, the most familiar example is purchasing real estate.

Depending on the state or territory and the circumstances of the transaction, stamp duty can potentially apply when:

• Buying residential property
• Purchasing investment property
• Acquiring commercial property
• Transferring property between entities
• Restructuring certain business or property ownership arrangements

The amount payable depends on factors such as the property’s value, location, transaction type and applicable exemptions or concessions.

Why Stamp Duty Can Be a Major Cost

Unlike an ongoing expense, stamp duty is generally associated with the transaction itself.

This means a property buyer can face a substantial upfront cost before receiving any rental income or capital growth from the property.

For example, an investor purchasing a high-value property may need to budget for both the deposit and associated transaction costs.

This can affect borrowing capacity and the amount of cash available for renovations, repairs or future investments.

What Is Land Tax?

Land tax is different from stamp duty because it is generally an ongoing state or territory tax based on the taxable value of land.

Depending on the jurisdiction and the owner’s circumstances, land tax may apply to investment, commercial or other taxable property holdings.

The rules vary considerably across Australia.

Factors that can affect a land tax liability may include:

• The state or territory where the land is located
• The taxable land value
• The owner’s ownership structure
• Whether multiple properties are aggregated
• Whether exemptions apply
• Whether the property is a principal place of residence

Land tax therefore needs to be considered as an ongoing holding cost rather than simply a purchase expense.

Stamp Duty vs Land Tax: What’s the Difference?

The simplest distinction is:

Both can influence property investment decisions, but they affect investors in different ways.

Why John Saade Criticises Stamp Duty

In The CEO Breakdown, John Saade argues that stamp duty can discourage people and businesses from making economically useful transactions.

His concern is that a large transaction-based tax can cause property owners to delay decisions simply because the tax cost makes moving too expensive.

For example, someone might want to sell their existing home and purchase another property that better suits their family.

If the stamp duty associated with the new purchase is substantial, they may decide to remain in their current property instead.

The same issue can arise when businesses need to restructure their ownership arrangements.

How Stamp Duty Can Affect Business Restructuring

Stamp duty is not limited to traditional property purchases.

For businesses holding property or other relevant assets, restructuring can potentially create state tax consequences.

This became a key issue discussed in John’s analysis of proposed trust tax reforms.

Federal reforms may encourage some businesses to consider moving from discretionary trusts into alternative structures. However, a federal concession does not necessarily eliminate state-based stamp duty.

This creates a potential problem for businesses that need to transfer valuable property as part of a restructure.

State Rules Can Produce Very Different Outcomes

One of the major challenges is that Australia’s states and territories have different taxation systems.

A transaction that produces one outcome in one jurisdiction may produce a very different result elsewhere.

This means property owners and business owners should never assume that a restructuring strategy will have the same tax consequences across Australia.

Professional advice should be obtained based on the location of the relevant property and the ownership structure involved.

Does Land Tax Make Property More Expensive to Hold?

It can.

For property investors, land tax is an ongoing expense that needs to be included when calculating the property’s investment return.

A property that appears attractive based on its gross rental yield may look less attractive after accounting for:

• Land tax
• Council rates
• Insurance
• Property management
• Maintenance
• Repairs
• Strata expenses
• Loan interest
• Vacancy periods

This is why investors should focus on net returns, rather than simply comparing rental income with the property’s purchase price.

Which Is Better: Stamp Duty or Land Tax?

This is partly a question of tax policy rather than simply an investor’s personal preference.

John Saade argues that transaction-based stamp duty can discourage efficient decisions because people are effectively penalised when they buy, sell or restructure.

Instead, he supports replacing stamp duty with a more consistent, value-based land tax model.

The argument is that owners would pay a recurring tax based on the land they hold rather than facing a large tax bill simply because they decide to transact.

Why the Difference Matters

Consider two hypothetical homeowners.

Owner A stays in the same property for 20 years.

Owner B moves several times because their family and financial circumstances change.

If transaction taxes are substantial, Owner B could face high additional costs simply because they move more frequently.

A land-based tax operates differently because it focuses on ownership rather than the act of buying or selling.

Whether one system is ultimately preferable involves broader economic and policy considerations, and state governments have different approaches to property taxation.

What Property Investors Should Calculate

Before purchasing an investment property, investors should calculate more than the deposit and mortgage repayments.

Consider the property’s:

Upfront Costs

• Purchase price
• Stamp duty, where applicable
• Conveyancing and legal fees
• Building and pest inspections
• Loan establishment costs
• Other acquisition expenses

Ongoing Costs

• Loan interest
• Property management
• Council rates
• Insurance
• Maintenance
• Land tax, where applicable
• Strata fees
• Vacancy costs

Potential Returns

• Rental income
• Potential rental growth
• Potential capital growth
• Tax implications
• Expected net return

This provides a more realistic picture of whether the investment works financially.

Property Owners Should Consider Tax Before Restructuring

Stamp duty and land tax can become particularly important when changing the ownership of property.

For example, a business owner considering moving property from a trust to a company should not assume that a federal tax concession automatically makes the restructure cost-free.

The transaction may need to be assessed for:

• Capital gains tax
• Stamp duty
• Land tax
• GST
• Financing implications
• Ownership structure consequences

A restructure should therefore be planned before assets are transferred.

Don’t Treat Stamp Duty and Land Tax as the Same Tax

Although both are state-based property taxes, they serve very different purposes and can affect property owners at different stages.

Stamp duty can create a high upfront cost when a taxable transaction occurs.

Land tax can become an ongoing holding cost based on taxable land ownership.

Understanding both can help investors make better-informed decisions about purchasing, holding, selling and restructuring property.

For property investors, the key takeaway is to look beyond the advertised purchase price.

The true cost of property ownership includes the taxes and expenses that come with acquiring, holding and eventually disposing of the asset.

Frequently Asked Questions About Stamp Duty vs Land Tax

Is stamp duty the same as land tax?

No. Stamp duty is generally associated with certain property transactions, while land tax is generally an ongoing tax based on taxable land holdings. Both are administered under state or territory rules.

Do all Australian property owners pay land tax?

No. Land tax rules, thresholds and exemptions vary between states and territories. A principal place of residence may also receive an exemption in many circumstances.

Do property investors pay both stamp duty and land tax?

Potentially. An investor may pay stamp duty when purchasing a property and may subsequently have a land tax liability while holding taxable property, depending on the relevant state or territory rules.

Can stamp duty apply when restructuring a business?

Potentially. Transferring property or certain other assets as part of a business restructure can trigger state or territory duty. The treatment depends on the transaction and jurisdiction.

Is land tax better than stamp duty?

There is ongoing debate around the economic effects of different property tax systems. John Saade argues that replacing transaction-based stamp duty with a recurring land-based tax could reduce the disincentive to transact, but the appropriate policy depends on broader economic and government considerations.

Need Help Understanding Your Property Tax Position?

Stamp duty and land tax can have a significant impact on property investment returns, business restructures and the overall cost of owning property.

Latitude Accountants can help Australian property investors and business owners understand the tax considerations relevant to their circumstances and plan ahead before making significant property or structural decisions.

Latitude Accountants

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📞 1300 706 597
📧 info@latitudeaccountants.com.au

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Disclaimer

This article provides general information only and does not constitute financial, tax, legal or property advice. Stamp duty, land tax thresholds, exemptions and rates vary between Australian states and territories and may change over time. Speak with a qualified adviser about your individual circumstances before making property, investment or restructuring decisions.