30 Jan Property Tax (First Home Buyer Choice) Act NSW 2022
Trying to break into the property market as a young Australian has never been more challenging. With house prices raising to unprecedented amounts, stamp duty, deposits, and other up-front payments all prove significant barriers in ascertaining home ownership.
The NSW Government assented to the Property Tax (First Home Buyer Choice) Act NSW 2022 (‘the Act’) on 11 November 2022, which aims to give first home buyers (‘FHB’) an option between paying an up-front stamp duty amount or an annual property tax (“the First Home Buyers Choice Scheme”) . This seeks to alleviate concerns that many FHB have with regards to having sufficient up-front funds to purchase a home.
FHB who purchase a property after 16 January 2023 may be eligible to participate in the First Buyers Choice Scheme and purchases between 11 November 2022 and 15 January 2023 eligible FHB may apply for a retrospective reassessment or refund of stamp duty paid (where they opt to pay an annual property tax).
I WHO IS ELIGIBLE?
This new tax is available strictly to FHB. FHB are classified as Australian citizens or permanent residents over 18, who have never owned or co-owned a residential property or received an exemption or concession under the First Home Buyers Assistance Scheme.
For a purchaser to opt between paying stamp duty or property tax, dwellings must have a dutiable value between $650,000 and $1.5 million. If a purchaser buys vacant land with the intention of building their first home on it, the property must be valued up to $800,000. Farm land is excluded from this Act. Any subsequent purchases of property will be required to pay stamp duty.
II HOW DOES IT WORK?
FHB are able to determine their preferred tax arrangements according to what works best for them on an individualised basis. The online Property Tax Calculator available on the Service NSW website enables FHB to estimate and compare an annual property tax and one off stamp duty for existing and new homes.
For a comparison of both options on an average Sydney home worth $1,000,000 please see below Figure 1.
Payable annually, based on land value.
|$400 + 0.3%* of land value
*annual tax rates will be subject to indexation.
|Transfer (stamp) Duty
|$9,805 + $4.50 for every $100 over $327,000 of purchase price.
Figure 1: Comparison Table
The scheme focusses on FHB who seek to be owner-occupiers. Clause 15 of the Act requires that the purchasers must occupy the transferred land as a principal place of residence for a continuous period of at least 6 months.
Furthermore, FHB may make a decision on their payment arrangements with consideration to the duration that they foresee they will be owning the property. For example, if a FHB expects to live in their first home for several decades, it may be more appropriate to pay the one off stamp duty payment. Alternatively for purchasers who may be struggling to pay the up-front costs of their first home, or who may not intend to live in the property for long, property tax may be preferred.
A Deferral Scheme
The Act establishes a deferral scheme under Part 7 which applies to people who may be unable to meet their obligations under the Property Tax. Generally, deferrals will be granted to those who have mental health, cognitive impairment, intellectual disability or other issues which may impede on their ability to pay Property Tax. Property tax can be deferred until the dwelling is eventually sold, at which the Government will claim the unpaid taxes as part of the property settlement.
The annual amount payable will be $400 plus 0.3% of the home’s land value. Please note land value does not equate to the purchase price. After 2024-25, tax rates will be adjusted in line with average annual incomes to ensure that property tax payments remain affordable over time. Section 55 of the Act importantly limits the amount that property tax rates can be increased in the future by the Government, to ensure stability and consistency.
C Stamp Duty
An eligible first home buyer who buys a property until 15 January would still be required to pay stamp duty to complete their purchase; however, from 16 January they will be able to apply to opt into property tax and receive a refund for any stamp duty paid.
III HOW WE CAN HELP
The Act establishes a new system for FHB which our property experts can assist you in better understanding. If you have any queries relating to the Act or anything mentioned in this article, please contact us.
This article is intended to provide general information on the identified legal topics and does not constitute legal advice and should not be relied upon as such.