APPROVED changes to the NSW property tax system will give first-home buyers the choice between paying an annual property tax or stamp duty.
Changes:
The NSW Government has now passed legislation allowing first-home buyers purchasing properties of up to $1,500,000 to choose between paying an annual property tax or stamp duty.
Under the scheme, first-home buyers will be able to 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
Eligibility:
Similar to previous government initiatives, the scheme is targeted toward individuals who have not previously owned or co-owned residential property in Australia or received previous First Home Buyer grants or duty concessions.
The property tax will only be payable by first-home buyers who opt into the scheme, and will not apply to subsequent purchasers of a property.
Unlike other schemes, however, most of which have been capped at purchases of $800,000 – the property tax option will be available for properties for up to $1.5 million.
Similarly, whilst previous schemes have been targeted solely at owner-occupied purchases, the property tax option will be available for both Owner Occupied and Investment purchases.
Timeline:
The legislation will become effective as of this Saturday (12th November 2022) / With the official scheme commencement set for 16th January 2023…
What does this mean? …
Eligible first-home buyers who sign a contract of exchange between the passage of the legislation (I.e. Saturday 12 November 2022) and the official scheme commencement date (I.e. 16 January 2023) – WILL be required to pay any applicable stamp duty. HOWEVER, from 16 January 2023, they will be able to apply for and receive a full refund of any duties paid.
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 immediately, and will not be required to pay any up-front stamp duties in order to complete their transaction.
Costs:
By paying the typical amount of stamp duty (based on the ‘dutiable value’ of a property), first home buyers are typically up for an additional 4-5% on top of the contracted purchase price of their property.
By opting into paying an annual property tax (based on the ‘unimproved land value’ of a property), first home buyers may reduce their up-front costs to as little as ~0.3% of the land value of their property.
The property tax rates for 2022-23 will be:
– $400 plus 0.3 percent of land value for Owner Occupied properties
– $1,500 plus 1.1 percent 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. That is, the property tax rates will be indexed so that the average annual property tax payment grows at the same rate as gross state product (GSP) per capita.
In order to avoid “bill shock” however, the government has currently stated that annual increases will be capped at 4 percent.
Examples:
NSW Treasury data shows the breakeven period between upfront stamp duty and an annual property fee would be 36 years for an $800,000 apartment, 28 years for a $1 million townhouse, and 26 years for a $1.25 million house.
The same data shows that if a first home buyer purchased a $1 million house and sold it 10 years later, which is around the median holding period, the annual property payments over the 10 years would total $19,881 in present value terms compared with $40,090 in upfront stamp duty – a saving of $20,209.
Impact:
This initiative will lower the up-front costs of home purchases and help to boost the rate of home ownership in NSW. In total, these measures will offer support to about 97 percent of all first-home buyers, or about 55,000 people per year.
Treasurer Matt Kean said the new law would help more young people enjoy the financial security that comes with home ownership.
“First Home Buyer Choice will significantly reduce upfront costs, reduce the time needed to save for a deposit, and will see the majority of eligible first home buyers paying less tax overall,” Mr. Kean said.
“We are giving people the opportunity to decide for themselves what best suits their financial situation. Those buying a home to live in for life can still choose stamp duty, but for many, paying an annual tax for the limited time they actually live in the property will make more sense.”
***
As always, feel free to reach out to me or one of the team at Smartmove Professional Mortgage Advisors for any mortgage or finance advice questions/ needs.
Written by Asher Levitt
With a passion for the property, real estate and financial services sectors, my career saw me working as a Business Analyst for multiple firms before joining Smartmove as a Mortgage & Finance Advisor in 2020. With a range of experience in both Accounting and Property Finance, I look forward to bringing this varied experience to help clients achieve their property and finance goals.
