There are not many certainties in life – death and taxes are two of them.
One member of every couple is going to die first, leaving the survivor with a house and garden too large to manage comfortably.
Couples who think ahead often plan to downsize to a property that is suitable for two people but compact enough for one elderly person to live in comfortably.
The community benefits from downsizing because people with families can move into the larger house that the elderly couple have vacated, making a small but significant contribution to solving the housing crisis.
Other advantages of downsizing include the opportunity to contribute up to $600,000 per couple from the proceeds of sale to their superannuation fund, to spend up on a bucket list of goods or experiences or even to help their children buy their family home.
But all is not so simple. Selling the family home and buying somewhere more modest to live in entails considerable expense – real estate commission, conveyancing fees, removal expenses and stamp duty (also known as transfer duty) and perhaps modifications to the new home to accommodate older persons’ needs.
A survey of more than 5,700 National Seniors members found that in every state of Australia, stamp duties encourages people to remain in the same house for longer.
Writing in The Conversation Dr Nick Garvin of Macquarie University Department of Economics, wrote if just one state of Australia, New South Wales, scrapped its stamp duty on real-estate transactions, about 100,000 more Australians would move homes each year.
Dr Garvin and colleagues found that when Queensland hiked stamp duty in 2011, for each percentage point stamp duty rates rose, the volume of home purchases fell 7.2 per cent. Separate data show that the rate of people changing addresses was similarly affected.
At a recent get-together in Parliament House organised by COTA, Lisa Munday MP spruiked the benefits of downsizing. I took the opportunity to buttonhole Don Punch, Minister for Ageing, about Stamp Duty.
Since state revenue is not part of his portfolio, Mr Punch cannot act on stamp duty but he agreed to discuss it with the treasurer Hon Rita Saffioti.
Minister Saffioti replied to me: “I understand that transfer duty may influence some people’s decisions on whether to purchase a home that is better suited to their changing needs.
“Transfer duty is a vital source of revenue for the State and helps to fund essential community services such as health, education, law and order, and transport.
“In this regard, transfer duty is one of the limited sources of taxation revenue available to the State and therefore the State must balance the desire to reduce state taxes with the need to meet the community’s demand for government services.”
The 2010 Henry Tax Review found stamp duty was inequitable. The review reported:
Ideally, there would be no role for any stamp duties, including conveyancing stamp duties, in a modern Australian tax system. Recognising the revenue needs of the States, the removal of stamp duty should be achieved through a switch to more efficient taxes, such as those levied on broad consumption or land bases.
Stamp duty costs the economy between 50 and 60 cents for every dollar raised. In 2018, the Grattan Institute found a national shift from stamp duties to land tax would add up to $17 billion per year to gross domestic product.
Ms Saffioti pointed out that WA State Government currently provides several transfer duty concessions, including assistance for apartments purchased off-the-plan or that are currently under construction.
Other states are more helpful to downsizers:
Pensioners in Victoria can get a one-off duty concession for home purchases valued up to $750,000 and this year the state began a transition from stamp duty to an annual property tax.
Tasmania provides a 50 per cent stamp duty discount for pensioners who sell their homes and downsize to a property of lower value.
Downsizers in the ACT are exempted from paying stamp duty for properties valued up to $550,000 and all stamp duty is in the process of being phased out.
NSW allows property buyers to opt for an annual property tax rather than a once only payment of transfer duty. This change encourages home owners to move if they need or want to and ensures a more regular flow of revenue to the state.
It is time for WA to reform stamp duty to encourage downsizing and provide the government with a more regular income stream.
