First Home Buyer Choice – Pay stamp duty upfront or pay annual property tax

What is the First Home Buyer Choice

The  NSW Government is providing first home buyers purchasing a new or existing home for up to $1.5 million the choice to either pay the existing upfront stamp duty or an annual property tax. A first home buyer purchasing vacant land on which they intend to build a home for up to $800,000 will also have the choice of either stamp duty or an annual property tax.

First home buyers will continue to be eligible for first home buyer stamp duty exemptions and concessions. Because first home buyers purchasing a new or existing home for up to $650,000 are exempt from stamp duty, they are not expected to choose the property tax.

For purchases of new or existing homes above $650,000 and below $1.5 million, eligible first home buyers can compare the applicable rates of stamp duty and annual property tax and choose which best suits their circumstances.

When does this come into effect?

The property tax option has now been approved and is applicable now. Eligible first home buyers who purchase a property on or after 16 January 2023 and who choose the property tax will not have to pay stamp duty to complete their property transaction.

For contracts signed in the period between enactment of the legislation and 15 January 2023, eligible first home buyers will be able to apply to choose the property tax, but they will still need to pay stamp duty and then apply for a refund of stamp duty from 16 January 2023.

Who is eligible?

First home buyers, complying with the current First Home Buyer Assistance Scheme eligibility criteria, and the purchase price thresholds ($1.5 million for properties with a home or $800,000 for vacant land), would be eligible to choose the property tax.

• Applicants must be an individual who is over 18 years old and must not be a company or trust.
• The first home buyer and their spouse or partner must never have owned or co-owned residential property in Australia and never received a first home buyer exemption or concession.
• The first home buyer must move into the new home within 12 months after buying the property and live there for a continuous period of at least six months.

How much will a first home buyer pay in property tax each year?

In 2022-23, annual property tax rates for owner-occupiers will be $400 plus 0.3 per cent of the property’s land value (as determined by the NSW Valuer General). The property tax rates will be annually indexed to ensure property tax remains an affordable option for first home buyers.

Can you convert your first home purchase into an investment property in the future?

Yes, although they will be required to notify Revenue NSW of this change of use.

In 2022-23 the annual property tax rates for residential investment properties will be $1,500 plus 1.1 per cent of the property’s land value. The property tax rate will be annually indexed by Gross State Product per capita to ensure that average payments grow in line with average incomes. To remain eligible for first home buyer property tax, a first home buyer must move into the property within 12 months of purchase and live in it for six continuous months.

Eligible First Home Buyers can pay property tax via instalments

The property tax can be paid in quarterly or annual instalments, like council rates. The property tax will be assessed for a financial year (i.e. 1 July to 30 June).  Property tax liability will commence from settlement of the property purchase (which is usually when the buyer receives the keys to the property). If a first home buyer purchases a property part of the way through a financial year, the liability will be reduced on a daily pro rata basis, so that the purchaser only pays for the number of days they own the property during the relevant financial year.

What happens when a first home buyer cannot pay the property tax?

A property tax deferral scheme will be available, recognising that taxpayers’ financial situations can change over time. Where the Chief Commissioner is satisfied that a household is unable to meet their property tax payments, they will be permitted to defer those payments until their financial situation changes, or the property is sold.

Can you switch between stamp duty and property tax?

No. First home buyers have the choice between stamp duty or property tax prior to settlement. Once this choice is made, it cannot be changed after settlement. If a first home buyer chooses the property tax, they must continue to pay the property tax until they are no longer the owner of the property. 

What are the differences between land tax and property tax?

Property tax is an annual tax levied each financial year on an individual property based on its land value. There are separate property tax rates for owner-occupied and investment property.

If a first home buyer chooses to pay the property tax on their first home, they will not be liable for either stamp duty or land tax in respect of that property. There are no proposed changes to land tax.

Land tax is an annual tax levied at the beginning of each calendar year on the total value of all the land you own that is above the land tax threshold. Your principal place of residence is exempt from land tax, and other exemptions and concessions may apply.

How to apply for the Property Tax Scheme

The process for applying for property tax will be set out on the Revenue NSW website from 16 January 2023. An application to opt into property tax can be made through your solicitor or conveyancer from 16 January 2023 and must be made prior to settlement.

For retrospective opt-in (i.e. for contracts entered into between enactment of the legislation and 15 January 2023), an application will need to be lodged with Revenue NSW to opt in and for the refund of duty paid from 16 January 2023.

How will property tax impact on tenants in the future if the property is rented out?

Only first home buyers are eligible to choose the property tax, and they must live in the home they have purchased for a minimum of six months. However, some of these first home buyers will eventually move out of these homes and rent them out to tenants, while still being required to pay the property tax.

Section 40 of the Residential Tenancies Act, 2010, requires residential landlords to pay State taxes. Tenants cannot be asked to pay the property tax.

How can we help?

If you have any questions or would like further information about first home buyer grants or property tax advice, please feel free to contact our office via email – [email protected] or phone 02 8651 8000  to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.

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