The Property Tax (First Home Buyer Choice) Act 2022 (NSW) provides eligible first home buyers with the option to either pay stamp duty or pay an ongoing property tax when purchasing land. The NSW Government has indicated that the scheme will address the current housing affordability crisis in NSW, as the removal of upfront costs on property sales and transfers will likely make home ownership more achievable for first home buyers.
We outline some of the key features of the new program below.
Property Tax Rates
Annual property tax payments are based on the land value of the purchased property. The property tax rates for 2022-2023 and 2023-2024 are as follows:
|$400 plus 0.3% of land value
|$1,500 plus 1.1% of land value for investment properties.
To be an eligible first home buyer in NSW:
- the purchaser must be an individual (not a company or trust);
- the purchaser must be over 18 years old;
- the purchaser, or at least one person they are buying with, must be an Australian citizen or permanent resident;
- the purchaser or their spouse must not have previously owned or co-owned residential property in Australia, nor received a First Home Buyer Grant or duty concessions; and
- the purchaser must sign the contract of purchase on or after 11 November 2022.
The property being purchased must be:
- a new or existing home in NSW with a value not exceeding $1,500,000; or
- vacant land in NSW, on which the purchaser intends to build their first home, with a value not exceeding $800,000.
A property is ineligible if it is:
- primary production land;
- land used for business or a business premises; or
- a holiday home.
There is also a residence requirement, which varies depending on whether there is a home on the property.
New and Existing Homes
The home must be occupied by at least one of the eligible purchasers as their principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months after Settlement.
Once vacant land is opted into property tax, the owner-occupied rate for property tax purposes applies for a period of up to 5 years provided that:
- the land is intended to be the eligible purchaser/s principal place of residence;
- building work commences on the land within 2 years;
- no income is derived from the land, and
- no other land is, or has been, owned by the eligible purchaser(s).
Within the year proceeding the completion of construction the land must be occupied by the eligible purchaser(s) as their principal place of residence for a continuous period of at least 6 months.
If the above vacant land residence requirements are not met, property tax will be chargeable for the period of ownership at the not owner-occupied rate. In reasonable circumstances where the construction on the property has not been completed, an application to the Chief Commissioner can be made to extend the 5-year period.
Eligible and Ineligible Purchasers Buying Together
If a purchaser is eligible for the First Home Buyer Choice and their percentage of the property is 50% or greater, they can apply to purchase with a non-eligible person (referred to as an equity partner). However, that person will be liable for their share of transfer duty and the portion they own may contribute to their land tax liability. The equity partner cannot be the purchaser’s spouse. The purchaser will be classed as an included owner and their equity partner will be classed as a not-included owner.
The property tax will only be payable by first home buyers who choose it and will not apply to subsequent purchasers of a property. As such, subsequent purchasers of a property will be required to pay stamp duty, unless they are also an eligible first home buyer and they choose to pay the property tax. This also applies to transferees, such as the person’s spouse on death, or if a breakdown in a marriage or de facto relationship occurs.
First home buyers looking to purchase property in NSW can opt-in to the property tax system and avoid hefty stamp duty fees. However, purchasers should also consider how long they envisage they will retain ownership over their prospective purchase, due to the ongoing nature of the property tax in contrast to the upfront single stamp duty payment.
Keystone Lawyers will be able to provide you with detailed information regarding the options available to you in relation to property tax and stamp duty.