The introduction of the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 will amend the current provisions within the Duties Act 1997 to see the option for First Home Buyers to be able to choose between an upfront payment or a smaller annual property tax from next year under the First Home Buyer Choice reform.

What is the current law?

Under the First Home Buyers Assistance Scheme, currently:

• Property purchased up to and under $650,000.00 receive a full exemption of Stamp duty.
• Property purchased between $650,000.00 and $800,000.00 receive concessional duty.
• Property purchased over $800,000.00 are not eligible for an exemption of concession.

Eligibility Criteria

To be eligible:

• You must be an individual (not a company);
• You must be over the age of 18;
• You, or at least one person you are buying with, must be an Australian citizen or permanent resident; and
• You or your spouse must not have previously:
  • Owned or co-owned residential property in Australia.
  • Received a First Home Buyer Grant or concessions.

Purchasers must move into the property within 12 months of purchase a live in it continuously for at least 6 months.

What changes will be made starting January 2023?

Under the First Home Buyer Choice reform, Property Tax will be introduced for first home buyers as another option of paying duty on the purchase of a property. Purchasers will be able to choose between paying the usual stamp duty based on the ‘dutiable value’ of the property or paying an annual property tax based on the ‘unimproved land value’ of the property.

The ‘dutiable value’ is the price you pay for the property or its market value, whichever is greater and includes at GST payable, whereas the ‘unimproved land value’ is the dollar figure a block of land is deemed to be worth without any buildings or structures on it.

The annual property tax payments will be based on the land value of the purchased property. The property tax rates will be:

• $400.00 plus 0.3 per cent of land value for properties whose owners live in them
• $1,500.00 plus 1.1 per cent of land value for investments properties.

These tax rates will be indexed each year, so that the average property tax payment rises in line with average incomes. The property tax assessment will be issued in respect of financial years.

Eligibility Criteria

To be eligible:

• You must be an individual (not a company);
• You must be over the age of 18;
• You, or at least one person you are buying with, must be an Australian citizen or permanent resident; and
• You or your spouse must not have previously:
  • Owned or co-owned residential property in Australia.
  • Received a First Home Buyer Grant or concessions.
• The property being purchased must be worth less than or equal to $1.5 million.
• Purchasers must move into the property within 12 months of purchase and live in it continuously for at least 6 months.
• The contract for purchase must be signed on or after the scheme commencement date (16 January 2023).

How will this reform affect Foreign Investors?

Commencing at midnight on 31 December 2022, for  all NSW residential land owned by foreign persons , the rate of land tax surcharge will increase from 2% to 4%. This will have an impact on foreign investors who usually invest in residential projects, primarily in a bid to ease competition faced by local investors. These changes are projected to lead to a fall in revenues from foreign investor surcharge land tax rates from $74 million in 2022-23 to $57 million in 2025-26.

It is unclear what time period the land tax surcharge will apply for, whether there will be an end point or if foreign purchasers will need to pay as long as they own the property. It is also unclear as to what the obligations of foreign purchasers will be when the property is intended to be sold.

We highly recommend individuals purchasing property to make sure you are aware of these changes and if you are unsure to contact our experienced property team at Keystone Lawyers for assistance.