The New South Wales (NSW) Treasurer, the Hon. Matt Kean MP, as part of the 2022-2023 State Budget announced tax measures intended to benefit eligible first home purchasers including a proposal about stamp duty [also referred to as transfer duty].
It is important to note that the legislation has not yet been passed by the NSW parliament and has not yet commenced.
WHEN DOES THIS SCHEME COMMENCE?
The Government intends that legislation to establish the property tax will be introduced into the NSW Parliament during the second half of 2022.
Eligible first home buyers who sign a contract of purchase on or after 16 January 2023 will be eligible to opt into the property tax and will not be required to pay stamp duty in order to complete their transaction.
Eligible first home buyers who sign a contract of purchase between the passage of the legislation and 15 January 2023 will be eligible to opt into the property tax. However, these purchasers will be required to pay any applicable stamp duty within the usual required periods and from 16 January 2023, will be able to apply for and receive a refund of that duty.
WHAT DOES THE FIRST HOME BUYER CHOICE MEAN FOR A PURCHASER?
Eligible First home buyers purchasing a property up to $1.5 million will have the choice of either paying upfront stamp duty (transfer duty) on their contract to buy property or otherwise agree to pay an annual property tax.
WHAT ARE THE ELIGIBILITY REQUIREMENTS?
Only first home buyers who meet the relevant criteria are eligible to choose not to pay stamp duty upfront but to pay the annual property tax. All other purchasers must continue to pay stamp duty on a contract as normal.
To be eligible:
- 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
- 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 the scheme commencement date.
If you are eligible, you can choose between
(a) paying the usual amount of stamp duty based on the ‘dutiable value’ of your property;
or
(b) paying an annual property tax based on the unimproved land value of the property.
HOW IS THE PROPERTY TAX CALCULATED?
The annual property tax payments will be based on the land value of the purchased property. The property tax rates for 2022-23 will be:
- $400 plus 0.3 per cent of land value for properties whose owners live in them
- $1,500 plus 1.1 per cent of land value for investment properties.
These tax rates will be indexed each year, so that the average property tax payment rises in line with average incomes. In other words, the tax will be subject to annual increases.
Property tax assessments will be issued in respect of financial years. For properties that are owned for less than a full financial year, a pro rata adjustment will be made based on the number of days in the year the property is owned.
If first home buyers are eligible for stamp duty concessions that is relevant to whether they would opt in to pay property tax or not.
WILL EXISTING STAMP DUTY CONCESSIONS CONTINUE?
Existing stamp duty concessions for eligible first home buyers are available for purchases of up to $800,000, and these concessions will continue.
There are no first home buyer stamp duty concessions for properties worth more than $800,000.
Eligible First home buyers of new or existing homes valued at less than $650,000, can apply for a full exemption and pay no transfer duty. This would also result in their not having to opt in pay a property tax.
Eligible First home buyers of a home valued between $650,000 and $800,000, can apply for a concessional transfer duty rate.
If an eligible first home buyer chooses to purchase vacant land with the intention to build their first home on that land and live there, then if the land is valued at less than $350,000, they can apply for a full exemption and pay no transfer duty so would not need to opt in for payment of property tax.
For vacant land valued between $350,000 and $450,000, an eligible first home buyer can apply to receive a concessional rate of duty. They could then either pay the stamp duty on the concessional rate for the purchase or opt into pay annual property tax on the full land value.
Eligible First home buyers of a home purchased for $750,000.00 would anticipate a concessional rate of $20,870.00 instead of the full ad valorem duty rate of $29,055.00. An eligible first home buyer might therefore prefer the to opt to pay the annual property tax calculated on the value of the land. If the land value was $270,000. The initial property tax would be $1,210 for 2022-2023.
WHAT IF THE FIRST HOME BUYER IS NOT ELIGIBLE FOR DUTY CONCESSIONS?
If the first home buyer does not qualify for a duty exemption or concession, the normal rates of stamp duty apply. But the eligible first home buyer can still opt in to pay the property tax for purchases up to $1.5 million.
FOR EXAMPLE
- For the purchase of a property valued at $1.2 million with a land value of $720,000.00, normal Stamp duty would be $50,875, because the purchase price is above the threshold for any first home buyer stamp duty concessions.
- But if the eligible first home buyer opts to pay property tax instead of upfront stamp duty the annual tax rate for 2022-2023 year would be $2,560.00.
WHAT HAPPENS TO YOUR PROPERTY TAX OBLIGATION WHEN YOU SELL?
It appears on the government data released that when the eligible first home buyer who opted into pay the annual property tax sells that property, they do not have to pay any other duty amount.
WHAT IF YOU DO NOT INTEND TO SELL?
If you opted in for the property tax and remain living in the property permanently the scheme apparently has the effect that you will continue to pay annually for as long as you remain the owner of that property.
HOW IS THE NEXT PURCHASER AFFECTED WHEN YOU SELL YOUR FIRST HOME WHICH HAS BEEN SUBJECT TO PROPERTY TAX?
If you sell the property, the new purchaser will not be subject to the property tax unless they are also an eligible first home buyer and choose to pay the property tax at the time they purchase. Otherwise, normal duty payments apply.
If you or anyone you know is interested in purchasing a property and needs assistance, M Duncan & Associates would be happy to help. Please contact us on [email protected] or 02 96999877.