In light of the New South Wales State Government’s 2020-2021 Budget, Revenue New South Wales have circulated their annual 2021 update (Update). The Update introduces a number of changes to the current rates and practices of various property taxes and concessions in NSW, including identifying a number of ‘common mistakes’ that Revenue NSW have identified in relation to these taxes and concessions.
Set out below is a summary of the relevant information provided in the Update.
Stamp Duty for First Home Buyers
As part of the NSW Government’s COVID-19 Recovery Plan, the stamp duty thresholds for the purchase of new homes and vacant land under the First Home Buyer Assistance Scheme (FHBAS) were increased for a twelve (12) month period between 1 August 2020 and 31 July 2021.
In summary, the thresholds from 1 August 2020 and 31 July 2021 were increased as follows:
- New Homes valued at less than $800,000 were eligible for a stamp duty exemption. New homes valued between $800,000 and $1,000,000 were eligible for a concessional rate of duty; and
- Vacant Land valued at less than $400,000 were eligible for a stamp duty exemption. Vacant land valued between $400,000 and $500,000 were eligible for a concessional rate of duty.
From 1 August 2021, the thresholds will revert to the previous parameters as follows:
- New Homes valued at less than $650,000 will be eligible for a transfer duty exemption. New homes valued between $650,000.00 and $800,000.00 will be eligible for a concessional rate of duty;
- Vacant Land valued at less than $350,000 will be eligible for a transfer duty exemption. Vacant land valued between $350,000 and $450,000 will be eligible for a concessional rate of duty; and
- Existing Home thresholds remain unchanged.
Therefore, any Contracts exchanged on and from 1 August 2021 that are eligible for the FHBAS will be subject to the above thresholds.
In light of these changes, any First Home Buyers that are currently in the process of purchasing a property should use their best efforts to ensure Contracts are exchanged prior to 31 July 2021 if the abovementioned changes will negatively affect their stamp duty concession.
Bushfire Duty Relief
The Bushfire Duty Relief Scheme (BDRS) was introduced for residential property owners whose homes were destroyed during the 2019/2020 NSW bushfires and who chose to purchase a replacement property in an alternative location rather than rebuilding.
To be eligible, applicants must be:
- a natural person;
- be an owner of a residential property located in the defined disaster area; and
- the residential property was their principal place of residence when it was destroyed.
Those that meet the above requirements for receiving assistance under the BDRS will either:
- not have to pay duty;
- pay a reduced amount of duty; or
- receive a refund of all (or some) of the duty paid.
For residential property and vacant land intended as the applicants principal place of residence, transfer duty relief will be available up to the value of $55,000.00, which is approximately equal to the duty assessed on a property priced around $1,250,000.00. If the value of the property is over $1,250,000.00, the duty payable will be reduced by $55,000.00.
The relevant application period for the BDRS is between 3 March 2020 and 2 March 2022.
Standard Transfer Duty Calculations for 2021
The new indexed amounts for the 2021 tax year is as follows:
Transfer duty rate
$0 TO $14,000
$1.25 for every $100 (the minimum is $10)
$14,000 to $32,000
$175 plus $1.50 for every $100 over $14,000
$32,000 to $85,000
$445 plus $1.75 for every $100 over $32,000
$85,000 to $319,000
$1,372 plus $3.50 for every $100 over $85,000
$319,000 to $1,064,000
$9,562 plus $4.50 for every $100 over $319,000
$43,087 plus $5.50 for every $100 over $1,064,000
Deceased Estates – When to apply section 63(2)?
Section 63(2) of the Duties Act 1997 provides for concessions from duty on the transfer of dutiable property where the relevant requirements of the section are satisfied. A concession under section 63(2) exists relating to transfers of estate property as agreed between beneficiaries. These agreements are usually in writing and commonly referred to as a ‘Deed of Family Arrangement’. The result is a transfer of dutiable property by the legal personal representative of the deceased to one of the beneficiaries in accordance with the agreement rather than in accordance with the will. Under section 63(2), the transferee will only pay duty on the dutiable value of the property they receive that exceeds the amount they were entitled to receive under the will.
Double Duty – Section 18
The NSW Civil and Administrative Tribunal (the Tribunal) recently handed down its decision in relation to Tzovaras v Chief Commissioner of State Revenue  NSWCATAD 265, which confirms that a double duty liability arose on an arrangement involving a land purchase and declaration of trust over the land. Thus, reiterating the need for satisfactory evidence to support a claim for the exemption from paying double duty under section 18 of the Duties Act 1997 (the Act). It was argued by the applicant that the provisions of section 18 of the Act applied on the basis that it was one single dutiable transaction effected by multiple documents. However, the Tribunal found that the declaration of trust and the Contract were both separate and distinct dutiable transactions meaning that the exemption of no double duty did not apply. In light of the above decision, it is increasingly important that section 18 of the Act be applied correctly to ensure that proper and accurate declarations are being made to Revenue NSW thus ensuring that the correct amount of transfer duty is being assessed on documents.
HomeBuilder Grant and First Home Owner (New Homes) Grant Update
The Australian Government announced on the 17 April 2021 that an extension to construction commencement requirement has now taken place for all eligible applicants. This extension now provides that the construction of the dwelling must take place within 18 months from the date of the contract in lieu of 6 months.
When Revenue NSW is assessing an application, Revenue NSW have noted the following reoccurring mistakes:
- some applicants of the First Home Owner (New Homes) Grant, will state the land contract date. This is incorrect. All applicants should be stating the building contract date as this is the time that Revenue NSW will assess the land’s value;
- some applicants believe that they must fulfil all resident requirements before applying for the First Home Owner (New Homes) Grant. All applicants should be applying for this grant within 12 months of settlement for new homes and 12 months from the date that the property is ready to be occupied for unfinished homes; and
- some applicants believe that you will still be eligible for the grant if you do not rent the property while residing in another property. In order to be eligible, at least one applicant must live (as the principal place of residence) in the property for a continuous period of six months within 12 months of settlement for new homes and 12 months from the date that the property is ready to be occupied for unfinished homes
Land Tax Update
There are a number of exemptions or concessions regarding the payment of land tax imposed by Revenue NSW. The most common of which is that you do not pay land tax on your principal place of residence (PPR). The Update has otherwise made the following comments in respect of other Land Tax concessions:
Build to Rent
Eligible “Build to Rent” properties will now receive a 50% reduction in land tax value for land tax purposes, an exemption for surcharge land tax and an exemption for surcharge purchaser duty.
To meet the requirements for a “Build to Rent” property:
- the property must contain at least 50 self-contained dwellings used specifically for build to rent purposes;
- the properties must comply with relevant affordable housing policies under the Environmental Planning and Assessment Act;
- the properties must be management by a single management entity with on-site access to management for tenants;
- dwellings must be made available to the general public with no restriction;
- the property must be held within a unified ownership structure; and
- each tenant must be provided with a range of lease term options, including a genuine option to enter into a fixed term lease of at least three (3) years.
Granny flats, Airbnb and partially rented property
Revenue NSW has also provided clarification on how the primary place of residence (PPR) exemption applies when part of the PPR is rented out (such as renting a granny flat or a room to boarders). If you are only renting one room, one-suite of rooms, one flat or two (2) rooms occupied by different tenants, you will generally be exempt. However, if you rent any more of your PPR than this you will only be eligible for a partial land tax exemption.
If you rent out your entire property for a period of time whilst you are away (such as on extended holiday), you may still be able to claim a land tax exemption. However, this is only where the property is not rented for more than six (6) months, you lived in the PPR for more than six (6) months prior to your absence and you do not live in anther property owned by you when away.
‘Property Tax’ Update
As you will recall, the NSW state government has released a consultation paper which aims to replace the current stamp duty and land tax structures in NSW with a proposed new ‘property tax’. In respect of the Update, substantive structural changes to stamp duty and property tax are, at least for the moment, confined to consultation at least until 30 July 2021.
As previously circulated, the proposed changes under the property tax regime are as follows (and as affirmed in the Update):
- similar to the levying of council rates, property tax liability will consist of a fixed amount plus a rate applied to the unimproved value of an individual property. The property tax surcharge would not apply to principal places of residence or farmland;
- at the point of purchase, buyers would be given the choice to pay property tax, or stamp duty and land tax (if applicable). Once a property is subject to the property tax, subsequent owners would be required to pay property tax;
- the property tax is proposed to operate differently for each ‘type’ of purchaser and for each property use. Notably, this is proposed to include:
a) Foreign Purchasers: Foreign purchasers are not proposed to be allowed to opt-in a residential property to property tax and may continue to be liable for the foreign investor duty surcharge. If a foreign resident acquires a property that is already paying property tax, they are proposed to be required to pay the annual property tax in addition to any foreign investor surcharges;
b) First Home Buyers: Existing stamp duty concessions for first home buyers would be replaced with a grant of up to $25,000;
c) Residential Developments: Properties that are being developed for residential use are proposed to be subject to the commercial rates of property tax during development. Residential rates are then proposed to apply once a property is capable of being occupied as a dwelling;
d) Subdivisions: Each new property created as a result of a sub-division is proposed to remain in the same tax system as the property before the sub-division;
e) Mixed-Use Properties: It is proposed the property tax will be apportioned based on an ‘apportionment factor’ recorded by the Valuer-General. When acquiring a mixed-use property, the commercial price thresholds would apply to determine eligibility to opt-in; and
- the NSW Government has indicated that property tax relief would follow four general principles:
a) if, under the current system, a taxpayer would be exempt from stamp duty at the time of purchase and would also be exempt from land tax, that taxpayer would be exempt from property tax;
b) if, under the current system, a taxpayer would be exempt from stamp duty at the time of purchase, but would not be exempt from land tax, that taxpayer would not be exempt from property tax;
c) if, under the current system, a taxpayer would be required to pay stamp duty at the time of purchase, but would be exempt from land tax, that taxpayer would be required to pay a concessional rate of property tax, and
d) existing stamp duty and land tax exemptions would remain for properties that are not opted-in to property tax.
Surcharge Duty Update
The Update reminds that all foreign persons have to pay 8% in “surcharge purchaser duty” on the value of the residential land that they have purchased and in addition to any transfer duty payable. The payment of surcharge purchaser duty is not limited to land purchases and also extends to other transactions such as transferring a lease or declaring a trust. In addition, foreign persons are required to pay “surcharge land tax” at a rate of 0.75% from the 2017 land tax year and 2% from the 2018 land tax year onwards. Surcharge land tax will be payable on top of regular land tax (the tax-free thresholds will not apply to surcharge land tax).
For clarity, the only people who are exempt to the payment of Surcharge Duty are
- Australian citizens;
- individuals who are ordinarily resident in Australia, meaning:
a) They have been in Australia for 200 or more days in the preceding 12 months; and
b) Whose presence in Australia is not limited as to time,
- permanent residents or retirement visa holders, being those that use and occupy their property as their principal place of residence for a continuous period of 200 days within 12 months from the liability date.
Failure to comply may result in penalties and interest being payable. Revenue NSW may offer a reduction in the penalty tax payable for non-compliance subject to voluntary disclosure and reduce interest where there is evidence that the non-compliance was beyond the purchasers control.
Should you have any questions in relation to the above Update, or any property matter generally, please do not hesitate to contact our Property Department at our Campbelltown, Liverpool or Camden offices.
We will otherwise continue to keep you updated with any changes or comments as they are published.
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.