The NSW state government has released details of its much-anticipated revamping of NSW state taxes in the 2022–23 state budget. Originally released for consultation in November 2020, the government is introducing a new property tax for first home buyers who choose not to pay stamp duty.
First home buyer property tax
From 16 January 2023, the First home buyer property tax option will enable first home buyers to choose between:
paying an upfront stamp duty, or
an annual property tax.
The main difference which exists for this announcement, compared to November 2020, is that only first home buyers will be eligible for the annual property tax.
The annual property tax option
Owner-occupiers who opt into the property tax will be charged at a rate made up of a fixed amount of $400 plus 0.3% of the unimproved land value of the property. These rates remain in place for each year the first home buyer remains an owner-occupier.
Notably, it is mentioned in the budget statement that the tax rates will be indexed over time by Gross State Product per capita, rather than land values, for subsequent years of ownership.
First home becomes investment property
First home buyers will be allowed under the new property tax to changes the status of the property from owner-occupier to investor. Investment property rates are $1,500 plus 1.1% of the property’s unimproved value in 2022–23. This annual property tax will replace NSW land tax for the investor.
Eligible properties
The property tax option will be available to first home buyers on purchases of land worth up to $1.5 million. Also, unlike other current first home stamp duty concessions, there is no requirement that the property be part of a new build.
What if I choose to pay stamp duty?
First home buyers who choose to pay stamp duty upfront can still get access to the other stamp duty concessions available in NSW.
Under the current scheme NSW stamp duty is:
exempt for new and existing homes valued less than $650,000
reduced to a concessional rate for new and existing homes valued between $650,000 and $800,000, and
exempt or reduced for vacant land under certain thresholds ($350,000/$450,000).
Service NSW has provided eligible first home buyers with a calculator to estimate and compare the difference between paying an annual property tax and the one off stamp duty payment. The calculator is available here.
Individual eligibility
Under the current schemes which exempt or reduce upfront stamp duty, the main eligibility criteria is that all owners of the property must never have owned or co-owned residential property in Australia. However, a reduced exemption or concession is available where a first home buyer owns at least 50% of the purchased property.
Also, there is living requirements for the subsequent 12 months after buying the property.
At present, there is no specific details on the individual eligibility criteria for the new annual property tax. However, it is likely that the criteria will be very similar to the current schemes in place.
Start date and transitional arrangements
The commencement date of the new property tax option is for contracts entered into from 16 January 2023.
Eligible first home buyers who execute contracts in the period between enactment of the legislation and 15 January 2023 will obtain refunds of stamp duty already paid.
