The changes under the scheme

In order to address the declining rate of home ownership within the State, the NSW Government is set to introduce legislation on the second half of 2022 that would enable first time home buyers to choose to pay an annual property tax instead of stamp duty. The scheme is aimed at lowering the upfront costs of home purchases, thereby making home ownership more attainable, particularly for younger and lower income groups.  

It is suggested that first home buyers will be able to choose how to pay duties between the stamp duty and property tax.

The property tax rates under the scheme will be as follows:

• $400 plus 0.3% of land value for properties whose owners live in them; or

• $1,500 plus 1.1% of land value for investment properties.

Note that, with regards to investment properties, the property tax that is payable cannot be passed to tenants by virtue of s 40 of the Residential Tenancies Act 2010.

Furthermore, upon the scheme being implemented, the existing stamp duty concessions for purchases of up to $800,000 by first home buyers will continue. Similarly, the stamp duty exemption for properties up to $650,000 remain unaffected.

Eligibility requirements

Purchasers who satisfy the following conditions may be able to opt for the property tax:

1. The purchaser is an individual, not a company or trust;

2. The purchaser is over 18 years old;

3. The purchaser, or at least another person that the purchaser is buying the home together with, must be an Australian citizen or permanent resident;

4. The purchaser (or the purchaser’s spouse) must not have previously owned or co-owned residential property in Australia and must not have received a First Home Buyer Grant or duty concessions;

5. The property must not exceed $1.5 million;

6. The purchaser must move into the property within 12 months of purchase, and live in it continuously for a period of at least 6 months;

7. The contract of purchase must be signed on or after the scheme commencement date, which is 16 January 2023. As for contracts exchanged in the period between the date the legislation is enacted and 15 January 2023, eligible first home buyers will be entitled for a refund of stamp duty already paid.

Practical considerations

Once a choice is made, it can no longer be changed after settlement and the purchaser must continue to pay the property tax until the property is disposed of. Hence, in choosing whether to pay stamp duty or property tax, purchasers would be well advised to consider how long they are likely to hold the property. If a purchaser intends to hold the property for a long period of time, it might be preferable to pay stamp duty. On the other hand, if a purchaser intends to hold the property only for a short period of time, it might be preferable to opt for the annual property tax. In making the decision, it might be useful to bear in mind that half of all owner-occupiers sell their property within 10.5 years and the average owner-occupier sells their home within 22.6 years.

We will keep monitor the progress of the enactment of the property tax scheme and provide the relevant update to you.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*