First Home Buyer Choice Stamp Duty Reforms
- 28 Nov 2022
- Property & Conveyancing
- Introduction
On 11 November 2022, the “First Home Buyer Choice” legislation [Property Tax (First Home Buyer Choice) Act 2022] was given royal assent, with the scheme to take effect on 16 January 2023.
This scheme allows First Home Buyers (“FHB”), purchasing a property up to $1.5m, to make a choice to either pay stamp duty, or an annual “property tax”.
While the scheme does not take effect until 16 January 2023, First Home Buyers entering a contract between 11 November 2022 and 15 January 2023, and settling before 15 January 2023, will have to pay stamp duty, but can then apply for a refund on 16 January 2023*[1] should they wish to opt for the annual property tax.
This scheme does not abolish the First Home Buyer Assistance Scheme; which currently provides an exemption from stamp duty for First Home Buyers for purchases of homes up to $650,000 ($350,000 for vacant land) and a concessional rate of stamp duty for First Home Buyers for purchases of homes up between $650,000 and $800,000 ($350,000 - $450,000 for vacant land).
- Stamp Duty: how much does it cost?
Stamp duty calculations in NSW are not quite linear (not a fixed percentage).
Calculations from 1 July 2022 are as follows:
|
Property value |
Transfer duty rate |
|---|---|
|
$0 to $15,000 |
$1.25 for every $100 (minimum $10) |
|
$15,000 to $32,000 |
$187 plus $1.50 for every $100 over $15,000 |
|
$32,000 to $87,000 |
$442 plus $1.75 for every $100 over $32,000 |
|
$87,000 to $327,000 |
$1,405 plus $3.50 for every $100 over $87,000 |
|
$327,000 to $1,089,000 |
$9,805 plus $4.50 for every $100 over $327,000 |
|
Over $1,089,000 |
$44,095 plus $5.50 for every $100 over $1,089,000 |
There are other considerations at play, such as ‘premium stamp duty’ for purchases over $3,268k.
- The new property tax: how much does it cost
The annual property tax payment rate is a ‘land value based assessment’.
The property tax rates for 2022-23 and 2023-24 will be:
- $400 plus 0.3 per cent of land value for properties whose owners live in them
- $1,500 plus 1.1 per cent of land value for investment properties.
There is an indexing of the rates from 2024-25, to increase in accordance with annual average incomes, but with a maximum annual cap of 4%.
Property tax assessments are based on a financial year.
Where the ownership is less than the full financial year, a pro rata adjustment is made.
- Some examples of stamp duty vs the new FHB property tax
Example 1: Adam + Barbara want to buy a property for $600,000 (land value of $300,000)
Stamp duty would ordinarily be $17,610.00.[2]
FHB Property tax would annually be $1,300.00, subject to increase if used as a home ($4,800.00 if used as an investment property).
But if the buyers can apply for the FHB Assistance Scheme, they are exempt from stamp duty.
Example 2: Cathy + Davide want to buy a property for $900,000.00 (land value of $500,000.00)
Stamp duty would ordinarily be $35,610.00.[3]
FHB Property tax would annually be $1,900.00, subject to increase if used as a home ($7,000.00 if used as an investment property).
It would take over 18 years (if the property was used as a home) before the FBH Property Tax would overtake stamp duty as an expense.
Example 3: Ester + Fady want to buy a property for $1,450,000 (land value of $850,000)
Stamp duty would ordinarily be $63,970.00.[4]
FHB Property tax would annually be $2,950.00, subject to increase if used as a home ($10,850.00 if used as an investment property).
- Eligibility for the FHB property tax
To be eligible, the applicant must:
- Be an individual (not a company or trust)
- Be over 18 years old
- Be Australian citizen or permanent resident (or at least one person you’re buying with must be)
- Have never previously (nor have a spouse whom has previously):
- owned or co-owned residential property in Australia
- received a First Home Buyer Grant or duty concessions.
- Be purchasing a property worth less than or equal to $1.5 million
- Move into the property within 12 months of purchase and live in it continuously for at least 6 months
- Sign the contract of purchase on or after 11 November 2022 (not the above discussion about applying for a refund where exchange is on or after 11 November 2022, but settlement is before 16 January 2023).
- Be purchasing an ‘Eligible Property’ including: a house, townhouse, strata unit, company title unit, flat, duplex or a vacant block of residential land intended as the site of a first home.
- Do I have to pay the balance of the ‘stamp duty’ value off when you sell the property, if you chose the FHB property tax option?
No. The choice is to either pay stamp duty or, alternatively, pay the property tax annually.
- Summary
If the property is used as a FHB home, then this scheme will be cheaper for First Home Buyers in most instances, save for those where the ownership is on a long enough term to overtake the cost of stamp duty. See the examples above.
If the property is used as an investment property by the First Home Buyers, then the property tax rate increases sharply and it will overtake the one-off stamp duty payment in a short space of time.
For professional legal advice, please contact Maclarens Lawyers on 9682 3777.
The information contained herein is general in nature, not to be relied on for your particular matter.
[1] The choice to opt for the annual property tax can be made between 16 January 2023 and 30 June 2023.
[2] $20 additional for stamping the two required instruments at $10 each.
[3] $20 additional for stamping the two required instruments at $10 each.
[4] $20 additional for stamping the two required instruments at $10 each.
For professional legal advice, contact Maclarens Lawyers on (02) 9682 3777
