With the passing of The Property Tax (First Home Buyer Choice) Act 2022 on 10 November 2022, eligible First Home Buyers will have the option to either pay Stamp Duty or an Annual Property Tax.
Why has the First Home Buyer Choice Scheme been introduced?
The First Home Buyer Choice Scheme has been introduced to encourage and support individuals and families to enter the property market by lowering the up-front costs of home purchases. The intention of the First Home Buyer Choice Scheme provides eligible first home buyers with the choice between paying a smaller annual property tax or an upfront stamp duty lump sum on their first property, enabling them to make the decisions that best suit them and their families' needs.
The First Home Buyer Choice Scheme will be available for new or existing dwellings up to $1.5 million and for the purchase of vacant land intended for the construction of a first home, the price cap will be up to $800,000.00.
When does the First Home Buyer Choice Scheme commence?
The Property Tax (First Home Buyer Choice) Act 2022 will commence on 16 January 2023. From this date, eligible first home buyers who enter into a Contract on or after 16 January 2023 will have the option to choose whether they wish to pay the annual property tax or stamp duty.
There is also a transitional period in relation to Contracts signed between 11 November 2022 and 15 January 2023. Whilst eligible first home buyers will still be required to pay stamp duty if settlement occurs on or before 15 January 2023, they will have the ability to apply to Revenue NSW for a refund of the stamp duty after 16 January 2023 and then opt into the annual property tax option. Otherwise, if settlement has not occurred on or before 15 January 2023, then eligible first home buyers will be able to make their applications to choose the property tax at any time between 16 January 2023 and 30 June 2023.
In addition to the above, the ability to apply for the annual property tax is also being made available to eligible first home buyers who entered into off-the-plan Contracts between 11 November 2021, which are due to settle on or after 11 November 2022. Again, eligible first home buyers will still be required to pay stamp duty if settlement occurs on or before 15 January 2023 and will then have the ability to apply to Revenue NSW for a refund of the stamp duty after 16 January 2023 and then opt into the annual property tax option. Otherwise, if settlement occurs on or after 16 January 2023, then eligible first home buyers will not be required to pay stamp duty and will have the option to apply to Revenue NSW to opt into the annual property tax.
An application to choose the annual property tax must be made prior to settlement by your solicitor or conveyancer. After settlement, buyers will be unable to make any changes to their choice regarding the annual property tax or stamp duty. That said, it is important to note that should you sell the property, the next purchaser will not be bound by your choice and they will have the option to either pay stamp duty or an annual property tax (provided they are also an eligible first home buyer).
In support of this initiative, the Government has launched the First Home Buyer Choice calculator. The online calculator will help eligible first home buyers make an informed choice between paying upfront stamp duty or the annual property tax.
What are the Annual Property Tax Rates?
The annual property tax rates for 2022-23 have been confirmed as:
- $400 plus 0.3 per cent of land value for owner occupied properties;
- $1,500 plus 1.1 per cent of land value for investment properties,
which are subject to change each year in line with average annual incomes (which is capped at a maximum increase of 4%).
The annual property tax will be assessed for each financial year and can be paid either in quarterly or annual instalments similar to Council rates.
Inevitably, the annual property tax rates will continue to increase annually to reflect the market and as will the value of the property. Meaning, if you elect to opt into the annual property tax as opposed to stamp duty, you will continue to pay a higher amount each year that you own the property.
It is important to note that provided you meet the residency requirement and reside at the property for a continuous period of at least 6 months within 12 months of purchase, you can then use the property for investment purposes in which case you will pay an annual property tax rate based on the higher amount.
If you do elect to convert the property into an investment property, then you must notify Revenue NSW of the change in use to enable them to amend the annual property tax rate payable by you.
Who is eligible for the First Home Buyer Choice Scheme?
To be eligible for the First Home Buyer Choice Scheme the purchaser must:
- be an individual over the age of 18;
- be an Australian citizen or permanent resident;
- have never owned property in Australia or received a First Home Buyer Grant or duty concession previously;
- be purchasing a new or existing property less than or equal to $1.5 million or alternatively, vacant land or the construction of a first home less than or equal to $800,000; and
- move into the property within 12 month of purchase and live there for a continuous period of at least 6 months.
Which option should you choose as a First Home Buyer? Annual property tax or stamp duty?
Whilst the option of opting into the First Home Buyer Choice Scheme and paying an annual property tax may offset the initial upfront costs associated with purchasing your first home, it may not be viable depending on how long you expect to own the property.
For those first home buyers that expect to own their property for a substantial period of time (i.e. 20 years or more), it may be that paying the stamp duty upfront will be a more feasible option and save you money in the long-term. This is due to the fact that the annual property tax will be subject to increase each year and it is expected that in the current climate, that the value of the land will also continue to increase each year.
Therefore, for a first home buyer expecting to own the property for a significant period of time, it is important to apply careful consideration to determining whether to opt into the annual property tax option or instead electing to pay stamp duty.
In contrast, for those first home buyers who are expecting to own the property for a shorter period of time, then it is likely the case that paying the annual property tax will be a more sensible option for them as opposed to paying stamp duty up front.
For further information and context as to the comparison between the annual property tax and stamp duty, please see below table.
|
Property Type |
Market Value |
Land Value |
Stamp Duty |
Property Tax (22/23) |
Years to Breakeven** |
|
Townhouse |
$1,500,000 |
$750,000 |
$66,700 |
$2,650 |
25 |
|
House |
$1,000,000 |
$600,000 |
$40,090 |
$2,200 |
18 |
|
Apartment |
$800,000 |
$400,000 |
$31,090 |
$1,600 |
19 |
|
Vacant land |
$650,000 |
$340,000 |
Exempt under FHBAS* |
$1,210 |
N/A – FHBAS would be the most sensible option |
*FHBAS means First Home Buyer Assistance Scheme.
** Approximates only and based on 22/23 property tax rate (with no increases) – Breakeven point will in fact be less years noting property tax will increase (year to year).
If you require further information about the existing scheme, please refer to our previous article First Home Buyer Assistance Scheme.
Where to from here?
Given the introduction of the First Home Buyer Choice Scheme to eligible first home buyers, the question on everyone’s mind is whether the annual property tax will be introduced across the board for all purchasers.
Unfortunately, there is no news or progress with respect to whether all purchasers should expect to receive the benefit of the option to pay an annual property tax as opposed to upfront stamp duty.
It is expected that further information should be made available to us once the First Home Buyer Choice Scheme has officially commenced and the NSW Government is able to assess the interest in the scheme and likely iron out any potential issues prior to any introduction of a similar scheme across the board.
Here to help
If you are an agent, first home buyer or purchaser and require advice with respect to the First Home Buyer Choice Scheme including your eligibility and whether you should choose the annual property tax or stamp duty, please do not hesitate to reach out to our Property Department here at Marsdens Law Group.
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The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
