NSW first home buyers: choice of tax

In a bid to encourage home ownership in NSW, the state government has introduced the First Home Buyer Choice scheme, which allows eligible first home buyers a choice between paying an annual property tax or the traditional stamp duty. Eligible first home buyers of residential properties valued at up to $1.5 million or vacant land of up to $800,000 will be able to access the scheme, provided other conditions are met.

The associated Bill has been passed by NSW Parliament, and eligible first home buyers can access the scheme from 12 November 2022. These buyers are required to pay stamp duty on purchases made until 15 January 2023, but will be able to apply for a refund of their stamp duty if they choose to opt into the annual fee. From 16 January 2023, purchasers can opt in to the annual fee directly.
As its name suggests, the First Home Buyer Choice scheme is only available to individual first home buyers over 18 years of age who have not previously owned residential land in Australia. For individuals with a spouse, it is also a requirement that the spouse has not at any time owned residential land in Australia either solely or with another person.

Eligible first home buyers of residential properties of up to $1.5 million or vacant land of up to $800,000 will be able to choose between smaller annual property payments or the traditional stamp duty. Occupation of the property must occur within 12 months of the first home buyer taking possession and must continue for at least six months.

For vacant land purchases, the occupation requirement does not apply if the Chief Commissioner of State Revenue is satisfied that the land is intended to be used as the site of a home and the home will be occupied by a first home buyer as their principal place of residence. The legislation does not specifically detail what documents are required, but presumably entering a contract to build a residence on the vacant land within a reasonable time should suffice.

The Chief Commissioner also has the discretion to vary or waive the occupancy requirements where there are extenuating circumstances.

If the option to pay the annual property tax is elected by the eligible individual, the rate of tax will differ depending on whether the property is owner-occupied or used as an investment after the initial six months occupation requirement. For owner-occupiers, the property tax rates per annum will be $400 plus 0.3% of the home’s land value (as determined by the Valuer General).

In cases where the property is rented out, the property tax rates per annum will be $1,500 plus 1.1% of land value. While the NSW government has committed to not increasing these rates for the first two financial years of operation, from the 2024–2025 financial year property tax rates will be indexed each year, capped at a 4% maximum.

It should be noted that the legislation excludes certain transfers from being “eligible transfers” and thus they are excluded from the scheme. These include business premises, a business, land use for primary production (ie farmland), and holiday homes.

In addition, a point of difference between this legislation and the original stamp duty reform consultation announced earlier in 2022 is that the property tax will now only be payable by first home buyers and will not apply to subsequent purchasers of that property. Initially, the choice to opt in to the annual property tax system would carry on to subsequent purchasers.

The First Home Buyers choice will apply on eligible purchases that settle on or after 16 January 2023. Eligible first home buyers who purchase a property between 11 November 2022 (when the Bill received Assent) and 15 January 2023 will still need to pay stamp duty to complete their purchase. However, from 16 January 2023 they will be able to apply to opt-in to property tax and receive a refund for any stamp duty paid.

A First Home Buyer Choice calculator is available on the Service NSW website at www.service.nsw.gov.au/transaction/calculate-your-property-tax.

Source: www.parliament.nsw.gov.au/bills/Pages/bill-details.aspx?pk=4018 
www.nsw.gov.au/media-releases/historic-first-home-buyer-law-passes-parliament