NSW First Home Buyer Choice

What is First Home Buyer Choice 

First Home Buyer Choice is a home ownership process based in NSW where you can pay property tax annually instead of stamp duty if you are a first-time buyer. First Home Buyer Choice can lower the upfront costs if you are eligible and looking to buy a property up to $1.5 million. It will also help to cut up to 2 years off the time so you can save some money for a deposit allowing you to fast-tracking the way to your new home.

However, existing stamp duty exemptions and concessions continue to apply for eligible purchases of up to $800,000 for first-home buyers. You can use the First Home Buyer Choice calculator to make an estimation and compare the property tax and stamp duty.

If you are eligible, you can choose between these two options

• Paying transfer duty depending on your property’s purchase price or current market value, whichever is greater; or 
• Paying a lower yearly property tax based on the land value and usage of the property.

Why Was the First Home Buyer Option Implemented?

NSW is one of the most expensive states to buy a home in Australia. According to CoreLogic, the median property value in Sydney is $1.26 million for houses and $783,406 for apartments, far exceeding the limits for paying zero stamp duty. Even in regional NSW, the median house price is $729,528. As a result, first-home buyers often struggle to locate a property that doesn’t come with a hefty stamp duty bill.

As an example of how high the stamp duty hurdle can be, a first-time buyer looking at an $850,000 property should budget for $33,340 in stamp duty. The stamp duty impost, combined with high property prices, has contributed to a drop in NSW homeownership, which has fallen from 70% in the 1990s to around 64% today. First Home Buyer Choice helps you to eliminate the need to save for stamp duty, helping first-home buyers to buy a place of their own.

When Will This Come Into Effect?

The Property Tax (First Home Buyer Choice) Act 2022 come into effect on 16 January 2023. Although, there is a transitional period until 16 January 2023 during which qualified first-time buyers must pay stamp duty and can seek a rebate after that date.

General Commencement: Contract of Purchase Signed On or After 16 January 2023

• Eligible first-time buyers who sign a contract of purchase on or after January 16, 2023, and opt-in to property tax will be exempt from paying stamp duty.
• Before settlement, an application to choose property tax must be submitted.
• An application to choose property tax may be revoked by the applicant if the applicant applies to the Chief Commissioner for revocation before settlement. 
• A property cannot be chosen into or out of property tax after settlement.

Transitional Period: Contract of Purchase Signed Between 11 November 2022 and 15 January 2023

• Eligible first-time buyers who sign a purchase contract between November 11, 2022, and January 15, 2023, will also be allowed to select the property tax:
• Applications for this group can be submitted at any time between January 16, 2023, and June 30, 2023.
• If settlement happens on or before 15 January 2023, they must pay stamp duty and will be entitled to apply to Revenue NSW for a stamp duty refund beginning on 16 January 2023. The decision to pay property tax cannot be modified once the application has been processed by Revenue NSW.
• If they choose property tax and settle on or after January 16, 2023, they will not have to pay stamp duty.
• First-time buyers who are considering purchasing during the transition period do not need to do anything differently, but they can do so knowing that they can opt-in to the First Home Buyer Choice beginning January 16th.

Off-The-Plan Purchase Contracts Signed On or After 11 November 2021 Which Settle On or After 11 November 2022

• The legal date on which stamp duty liability arises determines eligibility for property tax.
• Stamp duty obligation arises at the sooner of 

1. 12 months after the contract is signed or 
2. when settlement occurs for houses acquired off-the-plan and utilized as a main place of residence.

• First-time homebuyers who signed an off-the-plan purchase contract on or after 11 November 2021 and settle on or after 11 November 2022 are eligible to qualify for the property tax.
• Contracts for off-the-plan purchases signed on or after November 11, 2021:

1. If settlement occurs between 11 November 2022 and 15 January 2023, first-time buyers must pay stamp duty and then apply to Revenue NSW for a stamp duty refund. Property tax applications can be submitted between January 16, 2023, and June 30, 2023. The decision to pay property tax cannot be reversed once the application has been processed by Revenue NSW.
2. If first-time buyers choose property tax and settle on or after January 16, 2023, they will not be required to pay stamp duty.

Who’s Eligible?

There are some requirements you need to fill up if you want to be eligible as a first home buyer in NSW

• Applicant must be an individual, not a company or trust.
• They must be an adult which means they are over 18 years old.
• The applicant, or at least one person they are buying with, must be an Australian citizen or permanent resident.
• A first-home buyer or their spouse must not have previously owned or co-owned residential property in Australia, nor received a First Home Buyer Grant or duty concessions.
• The property must not be worth more than $1.5 million.
• Applicant must move into the property within 12 months of purchase and live in it continuously for at least 6 months
• They must sign the purchasing contract on or after 11 November 2022.

Properties Eligible to opt Into Property Tax

• A new or existing home with a value of up to $1,500,000 in NSW.
• Vacant land in NSW with a value of up to $800,000.

Properties Not Eligible to opt Into Property Tax

• Primary production land.
• Holiday homes.
• Land used for business or business premises 

Off-The-Plan Purchases

First-home buyers who signed an off-the-plan purchase contract on or after 11 November 2021 can opt-in to property tax, provided the purchase has not settled before 11 November 2022. 

The Difference Between Annual Property Tax Stamp Duty

Stamp duty

Stamp duty is an upfront payment made when purchasing a home. It is calculated as a percentage of the purchase price or current market value of the property. Stamp duty rates vary according to the property’s value.

Annual Property Tax

The land value of the purchased property is used to calculate annual property tax payments. The following are the property tax rates for 2022-2023 and 2023-2024:

• For properties where the owners live, the fee is $400 plus 0.3% of the land value.
• For investment properties, the fee is $1500 plus 1.1% of the land value.

How is Property Tax Calculated? 

Property tax is computed based on the property’s land value. This is merely the worth of your land. When the property is evaluated, your home, as well as any extra constructions or renovations you may have built, are not taken into account. The property tax rates for the 2022–23 and 2023–24 financial years are

• Owner-occupiers: $400 + 0.3 percent of the land value. 
• Residential investors: $1,500 + 1.1 percent of the land value. 

The above rates (both the fixed dollar amount and the percentage rate) will be adjusted yearly beginning with the fiscal year 2024-25, however, the homeowner’s year-on-year rise in property tax payments is limited to 4%.

Example: 

If a first-time buyer purchased a $1 million home and sold it ten years later, the annual property payments would be $19,881 in present value terms, compared to $40,090 in upfront transfer duty. That’s a $20,209 saving.

If a first-time buyer paid $799,000 for an apartment and sold it 7 years later, the yearly property payments would equal $7,221 in present value terms, compared to $30,883 in upfront transfer duty. That’s a $23,662 saving.

If You Choose Property Tax, How Much Will You Pay Each Year?

Annual property tax rates for owner-occupiers will be $400 plus 0.3% of the property’s land value in 2022-23 and 2023-24. (as determined by the NSW Valuer General). Property tax rates will be indexed annually beginning in 2024-25 to ensure that property tax remains an affordable option for first-time home buyers. The indexation system ensures that the average property tax payment rises in lockstep with the Gross State Product per capita (a measure of average income). 

GSP per capita has increased at a 3.2 percent annual rate over the last 15 years. The legislation also states that the property tax on a single property cannot increase by more than 4% from one year to the next.

How Do You Know Whether You Should Pay an Annual Tax or Stamp Duty?

If you are confused about how to know which option to choose, you should try the property tax calculator available on the Service NSW website. You should go for stamp duty if you have plans to hold onto the property for a long time. And if you are planning for a short-term thing, choose the annual property tax.

What Happens if a First-Time Home Buyer Is Unable to Pay the Property Tax?

In case you are wondering what happens if you can’t pay the property tax on time, there are several solutions to this too. First of all, a property tax deferral scheme will be provided Recognizing that taxpayers’ financial situations can vary over time. 

Besides, if the Chief Commissioner determines that a household is unable to meet its property tax obligations, the payments will be deferred until the household’s financial situation improves or the property is sold.

Will Stamp Duty Ever Be Cheaper?

In certain situations, paying stamp duty works out to be cheaper than an annual tax. The closer a property’s value is to the stamp duty-free threshold – $650,000 for a home or $350,000 for vacant land – the more likely you’ll be better off paying stamp duty. 

An example will be useful here. Assume you want to buy a house in Blacktown, in Sydney’s west. The property is listed for $700,000 with an underlying land value of $554,000. The value of the land remains constant regardless of how much you pay for it.

If you pay $700,000 for the house, the stamp duty bill will be $10,363. If you choose to pay the annual property tax, the first year will cost you $2,062. So, after five years, you will have paid a total of $10,310 in property taxes. After year six, the property tax outweighs the one-time stamp duty.

Let’s say you’re able to negotiate the house’s price down to $680,000. In this case, the first-year property tax will remain $2,062, but stamp duty will be reduced to $6,218. In three years, you will have paid nearly as much in total property tax ($6,186).

Land Tax Implications

There are some cases when property opted into property tax will be subject to land tax. Some land tax implications are listed as follows

• Opted-in Property (Wholly):

Property that is opted into property tax and serves as the owner’s primary dwelling is free from land tax. If the property is not owner-occupied, a decrease in the property’s land tax liability will be applied.

• Hybrid Property (Partially Opted-in Property):

Hybrid property may be subject to land tax only for the component of the property that does not opt into property tax.

What Happens if You Buy Your First House Before 2023?

First Home Buyer Choice will be fully implemented on January 16, 2023. Beginning on that date, first-time home buyers can choose to pay either the property tax or stamp duty, as long as they decide before the purchase is finalized.

If you buy your first home between 11 November 2022 and 15 January 2023, the situation is slightly different. You can still opt out of the property tax, but if the purchase transaction closes on or before January 15, you must pay upfront stamp duty and then apply for a refund after January 16. There is no need to pay stamp duty if the property purchase is completed after January 16, and you have chosen to pay property tax.

First Home Buyer Grants and Assistance

First Home Owner’s Grant (New Homes)

Considering purchasing or constructing your first home? The First Home Owner Grant Scheme may entitle you to a $10,000 grant. Revenue NSW is in charge of the scheme. When you arrange to finance your home, you can apply for the scheme. The bank or financial institution that provides you with a loan must be an approved agent.

First Home Buyer Assistance Scheme (FHBAS)

The NSW Government announced increased thresholds for the purchase of new homes and vacant land for the construction of a new home beginning on August 1, 2020. The existing home purchase threshold remains unchanged.

Under the assistance scheme, you may be eligible to apply for an exemption or reduction in transfer duty charges. This assistance program is available to first-time home buyers who are either purchasing a home or purchasing vacant land.

Applying for First Home Buyer Choice

General Application 

The property purchased dated 16 January 2023 can be filed under the General application. You will have to fill up these two forms:

• First Home Buyer Choice Application Form
• Purchaser/Transferee Declaration form 

Retrospective Opt-in

Retrospective opt-in is applied for the properties that are purchased between 11 November 2022 to 15 January 2023. If the settlement date is between 11 November 2022 and 15 January 2023, eligible first-home buyers can apply for a retrospective reassessment and refund of the transfer stamp duty paid. Applications must be submitted by June 30, 2023.

What Can We Do to Assist You?

If you have any questions regarding property tax or want more information about first-home buyer grants, please contact our office via email at [email protected] to arrange a meeting or you can call at 02 8651 8000 to speak with someone so you get your facts straight and make the best decision.

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