Tax reform

In 2012, the ACT Government began a 20-year program to modernise the Territory’s taxation system. At its conclusion, this reform program will have abolished a number of inefficient and unfair taxes, such as duty on property transfers and insurance premiums. Importantly, this program will not increase the overall tax burden on the ACT community, with only the foregone revenues resulting from the abolition of inefficient taxes being replaced through the efficient and equitable rates system.

The switch from duties to rates will give the ACT Government a stable and sustainable revenue source, allowing for long-term investments in key services, such as health, education, and transport. Tax reform will also encourage investment and growth, resulting in a stronger, more diverse, and equitable local economy.

Principles of taxation

There are four key principles for assessing the effects of a tax:

Stability

Taxes should raise a level of revenue that is broadly predictable, so that future revenue can be predicted, and likely to continue over time, to ensure ongoing funding of government services.

Efficiency

Taxes should not distort activity or unnecessarily influence the behaviour of consumers and producers in the economy.

Equity

Taxes should be equitable, which means that they apply in the same way to all people in the same circumstances.

There are two forms of equity: horizontal equity and vertical equity. Horizontally equitable taxes apply equally to people in similar financial circumstances. Vertical equitable taxes increase with income, so are about a person’s capacity to pay.

Simplicity

Taxes should be simple, transparent, practical and enforceable. The cost of administering and enforcing the tax should be minimal.

The government is abolishing inefficient and inequitable duties

Conveyance duty is a tax on the transfers of property, and is generally considered to be highly inefficient and inequitable for a number of reasons:

• Duty is inefficient: it influences people to make less optimal decisions about housing. For example, duty can discourage a person  who already owns a house from moving to a suburb closer to work (even if they would be better off that way).
• Duty is inequitable: it is only paid by the small part of the community that buys properties.
• Duty is an unstable source of revenue as the level of revenue depends on the property market.
• Duty is also a significant financial barrier for first home buyers.

Beginning in 2012, the ACT Government has significantly cut conveyance duty. Cuts to residential conveyance duty every year will result in the ACT having among the lowest duty rates in Australia.

From 1 July 2018 duty is completely abolished for all commercial property transactions of $1.5 million or less. This significant reform will promote investment in the ACT by eliminating duty on around 70 per cent of all commercial transactions in the ACT.

The government is utilising the efficient and equitable rates system

The ACT Government is increasing rates to make up for cuts to inefficient taxes, such as conveyance duty. Unlike other States and Territories, rates in the Territory directly fund vital community services like health, education, housing, roads, public transport, police and emergency services.

Rates operate as a broad-based land tax, and are widely recognised as an efficient form of taxation. This is because:

• Rates apply broadly across the community, either directly on property owners or indirectly through a tenant’s rental costs.
• There is a low risk of tax evasion, as land is a fixed and visible asset.
• Rates discourage land banking and encourage the productive use of land.
• Rates are a stable source of revenue, allowing the government to make accurate budget forecasts and make long-term  investments.

What is the government doing now to remove the duty barrier?

The abolition of duty is a long-term commitment over a 20 year period. To reduce the negative impact of duty on the conveyance process immediately, the ACT Government introduced a new system for collecting duty called the ‘Barrier Free model’. This model commenced on 18 September 2017 and is an Australia first. It supports the wider tax-reform agenda by making the purchase of properties in the Territory simpler and more efficient.

How is duty changing?

Previously, property buyers (or their representatives) had to lodge their contracts at the ACT Revenue Office within 90 days of signing the contract. The duty must be paid within 90 days. Once duty is paid, the ACT Revenue Office stamps the contract to prove payment. This allows the transfer to be registered after settlement.

The Barrier Free model moves the point of payment to after settlement so that buyers pay duty after they register their title. Assessments will be delivered to the email or physical address nominated on registration. You will have 14 days to pay, and payments can be made online.

The graphic below compares between the current conveyancing model and the new Barrier Free model, showing how the new model is a shorter and simpler process.

The Barrier Free model has many benefits for first home and other property buyers:

• A single point of contact at Access Canberra.
• Transactions will be processed faster.
• You no longer pay duty before settlement.
• Applies to all property transfers, including off the plan purchases.
• You can claim concessions and exemptions without a detailed application form.

Under the Barrier Free model, you are expected to keep your own records of the transaction. If you have claimed a concession or exemption, the ACT Revenue Office may contact you after the assessment to review your eligibility. For example, you may be asked for copies of supporting documents.

Abolished Taxes

Insurance duty

Insurance duty was abolished in the ACT on 1 July 2016 as part of the ACT Government’s tax reform agenda. The ACT is the only State or Territory to have completely abolished this tax. Before this important reform, 10 per cent duty applied to general insurance premiums and 5 per cent applied to life insurance.

Removing this tax makes insurance more affordable for businesses and households in the Territory and will reduce the level of under-insurance. For a household spending $3,000 on insurance each year, the annual saving is $300.

The following taxes have also been abolished in the ACT:

Discontinued assistance schemes

From time to time, the ACT Government may discontinue an assistance scheme. This can be due to a number of reasons, such as a scheme having achieved its objective or funding being redirected to another program.

Please be aware that, although the following schemes have been discontinued, you may, however, remain eligible for assistance under them if the relevant transaction occurred prior to their expiry. Please contact us for further information regarding your eligibility and the application process for these discontinued schemes.