In late 2022, NSW Government introduced assistance for first home buyers in the form of the property tax, under the First Home Buyers Choice scheme. The new provisions have not replaced the existing first home buyer assistances, but they do provide certain buyers with options to pay an annual property tax rather than a large upfront stamp duty fee.

Notably, the option to pay property tax rather than stamp duty is only available to eligible new home buyers.

Stamp duty when purchasing property in NSW

Stamp duty ordinarily applies when purchasing a property unless you qualify for an exemption or concession.

The stamp duty payable is calculated on the purchase price of the property. You can estimate the stamp duty payable using this Revenue NSW stamp duty calculator.

Stamp duty remains payable for purchasers who are not first home buyers.

Property tax when purchasing property in NSW

For first home buyers who meet certain conditions (see below), the NSW Government has introduced an option to pay an annual property tax instead of one-off lump sum stamp duty.

Purchasers who meet the requirements for the tax have to opt-in to paying the property tax instead of stamp duty. It does not automatically apply instead of stamp duty.

Eligibility to pay property tax rather than stamp duty

To qualify for the property tax rather than stamp duty, the following requirements have to be met:

1. The property price must be equal to or less than $1,500,000;
2. The purchaser has to be an individual over the age of 18 - they cannot be purchasing in a company or trust;
3. The purchaser (or if multiple purchasers, then one of the purchasers) must be an Australian citizen or permanent resident;
4. The purchaser or their spouse (including de-facto spouses) must not have previously owned or co-owned residential property in Australia;
5. The purchaser or their spouse cannot have ever previously received a First Home Buyer Grant or other duty concession;
6. The property must be used as the principal place of residence of the purchaser within 12 months of the date the property is purchased, and the purchaser must live in the property continuously for at least 6 months. At a later time, after this requirement has been satisfied, the purchaser can move out of the property and use the property as an investment property, but a higher rate of tax would be payable by the purchaser;
7. The Contract for Sale must have been entered into on or after 11 November 2022.

If a purchaser meets the above conditions, then they can opt into paying the property tax instead of stamp duty. If the purchaser opts into the property tax, then the property is also not subject to land tax.

How much is the property tax?

If a purchaser opts-in to paying the property tax, the actual amount that is payable depends on the property's land value and whether the property is used as a principal place of residence or as an investment property. The purchaser must still satisfy the requirement that they live in the property within 12 months from settlement, for a minimum period of 6 consecutive months, before it is then used as an investment property.

The land value is not the purchase price that is paid for the property. The land value is the value of the land only, ignoring the value of the building(s) and structures on the land. This is determined by the NSW Valuer General.

In the case of a unit, land value is the value of the land upon which the building has been erected. The value is then apportioned among the units in the strata scheme using the unit entitlement.

For the first two financial years of the new scheme (2022-23 and 2023-24), the annual property tax rates for:

1. owner-occupiers will be $400 plus 0.3% of the land value for the property;
2. investors will be $1,500 plus 1.1% of the land value for the property.

The property tax will increase over time, and the rate will be indexed annually from the 2024-25 financial year so that the payments increase in line with average annual incomes. This growth will be capped at 4% annual increases.

If the property is originally used as a principal place of residence, but the owner moves out of the property, then the investor rate will apply, and it will be more costly for the owner. The owner will need to notify Revenue NSW of the change of use.

Revenue NSW has an online calculator that can be used to calculate the property tax payable in the 2022-23 financial year.

Primary difference between property tax and stamp duty

Stamp duty is a once-off payment. After stamp duty is paid on the purchase of a property, there is no additional stamp duty payable on that property while the property is retained by the owner.

The property tax, on the other hand, is an ongoing annual payment. Property tax will be payable by the owner of the property each financial year while the property is retained by the owner.

How do I apply for the property tax?

If you meet the eligibility criteria outlined above and wish to pay property tax instead of stamp duty, you will need to notify your lawyer or conveyancer at the time you are purchasing your property to ensure you opt-in at the correct time.

There are strict deadlines, and if you miss the deadlines to opt-in during your purchase, you will be prevented from switching to paying property tax at a later time, and the higher lump sum stamp duty amount will apply.

Will anything change for non-first home purchasers

At this stage, the property tax will not have any impact on non-first home buyers. People who do not meet the eligibility criteria or who are not purchasing their first home will continue to have to pay stamp duty.

If anyone who is ineligible for the first home buyer property tax purchases a property from someone who does pay the annual property tax, the new purchaser will need to pay stamp duty, and the property will not be liable for the property tax.

Get help from a property lawyer

The introduction of property tax in NSW provides eligible first home buyers with an additional option when purchasing their first home. If you wish to opt into the payment of property tax instead of stamp duty, then advice from a qualified property practitioner should be obtained.

Contacting E&A Lawyers

For more information or to arrange a consultation with a lawyer, you can call or email us.

📞  02 9997 2111

📧  info@ealawyers.com.au

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