From 16 January 2023, eligible first home buyers will have a choice between paying stamp duty on the transfer of the land or an ongoing property tax.
It is estimated that it takes the median NSW household around 10 years to save for a 20 per cent deposit and two years to save for stamp duty. This is compared to the 1990s where it would take the median New South Wales household, putting aside 15 per cent of their income, around six years to save for a 20 per cent deposit on the median property in New South Wales and one year to save for stamp duty. [1]
Average property prices have grown twice as fast as the average wage each year, every year, at least back to 2015.[2] As it is taking first home buyers longer to save the up front costs of purchasing a home, rates of home ownership in New South Wales have fallen from 70 per cent in the 1990s to 64 per cent in 2021. For younger people aged 25 to 34, the national rate of home ownership sits much lower, at around 41 per cent in 2019-20.
To enable first home buyers greater access to home ownership, on 11 November 2022, the Property Tax (First Home Buyer Choice) Act 2022 (NSW) was assented.
Eligibility criteria for properties:
- For vacant land, with the intention of building their first home, up to $800,000;
- For dwellings up to $1,500,000.
Farmland, business premises, holiday homes are excluded from the First Home Buyer Choice.
The First Home Byers Assistance Scheme still provides no transfer duty for first home buyers on properties less than $650,000 and concessional rates of transfer duty up to $800,000 on new and existing homes.
Residence requirement:
At least one of the eligible first home buyers must occupy the property as a principal place of residence for a continuous period of least 6 months, and the occupation must start within 12 months after the land is transferred. This requirement can be varied subject to approval by the Chief Commissioner on conditions as listed in the Act.
How will the tax be calculated?
The rate of property tax applied depends on whether or not the property is owner occupied, or not owner occupied.
For owner-occupied residential property, the property tax rates will be $400, plus 0.3 per cent of unimproved land value—land values in this instance are the official land values determined by the Valuer General and do not include the value of the buildings on the land. For further clarity, this is not the sale price of a property.
If a property tax dwelling is rented out, an initial investor rate of $1,500, plus 1.1 per cent of land value, will apply. The higher rates for investors apply because of the scheme’s focus on lifting rates of home ownership and because investors’ property tax payments would be deductible expenses for income tax purposes. These tax rates will remain unchanged during the first two financial years of the scheme.
Owners must notify Revenue NSW should the status of the land change between owner occupied or not owner occupied and the effective date of each change with supporting evidence. This change of status of the land will adjust the property tax rate payments accordingly.
For 2024-25 and subsequent financial years, the tax rates will be indexed each year in line with average annual income, and capped at a maximum of 4 per cent growth.
The liability for property tax will be calculated at the start of every financial year, and eligible first home buyers will receive a property tax assessment annually for as long as they own the property.
The property will remain subject to this tax until it is sold or otherwise transferred.
Deferral of payment
The Act also specifies grounds for deferral of payment of the property tax if it would cause an individual to be unable to meet basic living expenses. Unpaid property tax continues to be a charge on the land even if the Chief Commissioner approves deferral of payment. Interest will be payable on the deferred unpaid property tax.
Sale of property subject to property tax
Once the first home buyer transfers and that is still subject to property tax, the purchaser will be subject to property tax if they are an eligible first home buyer and elect to pay the property tax.
If the first home buyer transfers the land to someone who is already an owner of the land, duty is not chargeable on the transaction and the land remains subject to property tax with the proportion subject to property tax being unchanged. This is also in circumstances of the person’s spouse on death or breakdown in marriage or de facto relationship.
If the transferee is not already an included owner of the property, duty is chargeable on the transaction, and the land remains subject to property tax with the proportion subject to property tax being unchanged.
When selling the property, a property tax status certificate will need to be requested to indicate if there is any tax owing on the property.
The Act only applies to first home buyers and subsequent purchasers of property that are not eligible first home buyers will still be required to pay transfer duty. Surcharge purchaser duty and surcharge land tax may still be payable if any of the eligible transferees is a foreign person.
To assist first home buyers, an online property tax calculator can be accessed here: First Home Buyer Choice Calculator
[1] Second Reading Speech, Legislative Assembly on 12 October 2022
[2] Second Reading Speech, Legislative Council on 8 November 2022