The Choice of First Time Home Buyers in NSW

Changes to the NSW property tax system allow first-time home buyers to choose between paying annual property tax or stamp duty.

The NSW Government is now offering first-time home buyers purchasing a property for up to AUD 1.5 million the ability to choose to pay annual property tax instead of stamp duty. The property tax will only be available to first home buyers who choose it and will not apply to people who have previously owned real estate.

This initiative will reduce the upfront costs of buying a home and help increase home ownership rates in NSW. With rising home prices, the homeownership rate has dropped from about 70% in the 1990s to about 64% today. The decline in home ownership is especially evident among younger and lower income groups.

The savings needed to meet the upfront costs of purchasing a home is a significant barrier for many homebuyers. Removing the duty to pay stamp duty will reduce these upfront costs and cut the time many first home buyers need to save up for a home by up to two years.

Current stamp duty reliefs for first-time home buyers are available for purchases up to AUD 800,000. The property tax option will be available for properties priced up to AUD 1.5 million, expanding the pool of first home buyers. In total, this measure will support about 97% of first-time home buyers, or about 57,000 people each year.

1. Legality

To qualify:

> You must be an individual (not a company or trust)

> You must be over 18 years old

> You, or at least one person you are buying with, must be an Australian citizen or permanent resident

> You or your spouse must not have previously had:

• Residential property owned or jointly owned in Australia
• Received the First Home Buyers Grant or tax relief.

> The property you are purchasing must be worth less than or equal to AUD 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 a sales contract on or after November 11, 2022

2. Annual Real Estate Tax or Registration Tax

If you are eligible, you can choose between: (a) paying the normal amount of stamp duty based on the ‘taxable value’ of your property; or (b) pay annual real estate taxes based on the land value of the property.

Current tax incentives and exemptions for first-time home buyers remain unchanged. There are no stamp duty concessions for first-time home buyers for properties worth more than AUD 800,000.

If a first-time home buyer does not qualify for stamp duty exemption or reduction, the normal tax rate will apply.

Annual property tax payments will be based on the land value of the property purchased. The property tax rates for 2022-23 and 2023-24 will be:

• AUD 400 plus 0.3% of the land value for the property in which the owner lives.
• AUD 1,500 plus 1.1% of land value for investment properties.

These tax rates will be indexed annually from 2024-25, so that average indexed property tax payments increase in line with average annual income. Additionally, the annual growth of individual estate tax payments is limited to a maximum of 4%.

Property tax assessments will be issued each fiscal year. For properties owned for less than one financial year, pro rata adjustments will be made based on the number of days in the year the property was owned.

3. What Is It Like To Buy A Property Subject To Real Estate Taxes?

Only first-time home buyers are eligible to pay property taxes. All other buyers must continue to pay stamp duty as normal.

If you buy property from someone who is paying property taxes, you will not be subject to property taxes (unless you are also a qualified first-time home buyer and you choose to pay property taxes).

4. When Does the Policy Take Effect?

The law providing for property tax was promulgated and received assent on November 11, 2022.

Eligible first-time home buyers who sign a contract of sale on or after 16 January 2023 will be able to opt-in to property tax and will not have to pay stamp duty, provided they choose to pay property tax before their purchase settles.

Eligible first-time homebuyers who sign a sales contract between November 11, 2022 and January 15, 2023 will also be able to opt-in to the property tax:

• For this group, applications for property tax election may be made at any time between January 16, 2023 and June 30, 2023.
• If payment takes place on or before 15 January 2023, they will have to pay stamp duty and then apply for a tax refund by 16 January.
• If the payment takes place on or after 16 January 2023 and they have elected property tax, they will not need to pay stamp duty.