Changes to the NSW stamp duty system now gives first home buyers the choice between paying an annual property tax or stamp duty.
First home buyers purchasing properties valued at $1.5 million and below now have the ability to choose to pay an annual property tax instead of stamp duty. The idea is to lower the up-front costs of first home purchases and help to boost the rate of home ownership in NSW.
Removing the obligation to pay stamp duty will lower these up-front costs and cut up to two years off the time needed by many first home buyers to save for a home.
Stamp duty exemptions and concessions for first home buyers purchasing properties valued under $800,000 remain. Essentially, the property tax option will be of assistance to those buyers looking at properties which don’t meet the criteria of the $800,000 threshold but are under $1.5 million. The NSW government believes that these measures will offer support to about 97 per cent of all first home buyers, or about 57,000 people per year.
You must be an individual (not a company or trust)
you must be over 18 years old
you, or at least one person you’re buying with, must be an Australian citizen or permanent resident
you or your spouse must not have previously owned or co-owned residential property in Australia or received a First Home Buyer Grant or duty concessions.
the property you are buying must be worth less than or equal to $1.5 million
you must move into the property within 12 months of purchase and live in it continuously for at least 6 months
you must sign the contract of purchase on or after 11 November 2022
If you meet the criteria, you can choose between paying the usual amount of stamp duty based on the ‘dutiable value’ of your property or paying an annual property tax based on the land value of the property.
If you chose the property tax the payments will be based on the land value of the purchased property. The property tax rates for 2022-23 and 2023-24 will be:
$400 plus 0.3 per cent of land value for properties which are owner occupied; or
$1,500 plus 1.1 per cent of land value for investment properties.
These tax rates will be indexed each year from 2024-25, so that the average indexed property tax payment rises in line with average annual incomes. In addition, the year-to-year growth of individual property tax payments are capped at a maximum of 4 per cent.
Only first home buyers are eligible to choose to pay the property tax instead of stamp duty. All other purchasers must continue to pay stamp duty as normal.
If you are buying a property from somebody who is paying the property tax, you will not be subject to the property tax (unless you are also an eligible first home buyer and you choose to pay the property tax).
Eligible first home buyers who sign a contract of purchase on or after 16 January 2023 will be able to opt into the property tax and will not be required to pay stamp duty, provided they choose to pay property tax before their purchase settles.
Eligible first home buyers who sign a contract of purchase between 11 November 2022 and 15 January 2023 will also be able to opt into the property tax. If settlement occurs on or before 15 January 2023, they will need to pay stamp duty, and then apply for a refund of the stamp duty after 16 January. If settlement occurs on or after 16 January 2023, and they have chosen property tax, they will not need to pay stamp duty.
Property tax example
Jessie and Jamie are first home buyers, purchasing a house in Newcastle. The purchase price is $1,200,000 and the land value is $720,000.
Stamp duty on this purchase is $50,200, and the purchase price is above the threshold for any first home buyer stamp duty concessions.
In 2022-23, property tax on the property would be $2,560. This amount would be indexed for the next financial year.
Not having to pay stamp duty would really help to lower the up-front costs of the purchase, so Jessie and Jamie choose the property tax.
How we can help
Our team can assist first home buyers with the purchase of their property and to navigate the choice between paying stamp duty and paying the annual property tax. Contact us today.