A Choice For First Home Buyers in NSW

‘First Home Buyer Choice Scheme’

From 16 January 2023, eligible first home buyers have a choice between paying an annual property tax or stamp duty on the purchase of their property under the First Home Buyer Choice Scheme.

This scheme applies to new or existing homes for up to $1.5 million or vacant land on which buyers intend to build a home for up to $800,000.

Existing first home buyer stamp duty exemptions and concessions will continue to apply to purchases of up to $800,000.

Eligibility

To qualify as a first home buyer in NSW, you must meet the following criteria:

• be an individual (not a company or trust)
• be over 18 years old
• you, or one person you’re purchasing with, must be an Australian citizen or permanent resident
• you and your partner must never have owned or co-owned residential property in Australia and never have received a First Home Buyer Grant or duty concessions
• property value must be worth less than or equal to $1.5 million
• you must move into the property within 12 months, and live there continuously for at least 6 months
• contract of purchase must be signed on or after 11 November 2022.

Cost of property tax each year

In 2022-23 and 2023-24, annual property tax rates for owner-occupiers will be $400 plus 0.3% of the property’s land value as determined by the NSW Valuer General.

The property tax rates will be annually indexed from 2024-25. This means that the average property tax payment grows in line with the Gross State Product (GSP) per capita, which is a measure of average income.

Over the past 15 years, GSP per capita has grown at an average annual rate of 3.2%. The legislation provides that the year-to-year growth of the property tax on an individual property is capped at 4%.

If a first home buyer changes the use of their property into an investment property, they will be required to notify Revenue NSW.

In 2022-23 and 2023-24, the annual property tax rates for residential investment properties will be $1,500 plus 1.1% of the property’s land value.

If the first home buyer has eventually moved out of the property and rented the property out to tenants, the owner will still be required to pay the property tax. Under section 40 of the Residential Tenancies Act 2010, residential landlords must pay State taxes and cannot ask tenants to pay the property tax.

How to apply for property tax

First home buyers who opt into property tax will not have to pay stamp duty and can do this by lodging an application to choose property tax before settlement, made through their solicitor or conveyancer. After settlement, this choice cannot be changed, and the first home buyer must continue to pay the property tax until they are no longer the owner of the property.

If first home buyers entered a contract between 11 November 2022 and 15 January 2023, an application for retrospective opt-in can be lodged with Revenue NSW to choose property tax between 16 January 2023 and 30 June 2023. If stamp duty has already been paid, first home buyers will be able to apply to Revenue NSW for a refund of the stamp duty.

Before deciding to choose property tax, first home buyers may want to consider how long they plan to hold the property and the number of years they may have to pay the property tax if they opt into property tax. For those that plan to hold the property for a long time, it may be preferable to pay stamp duty instead.

An Example

If the property purchase price is $1,000,000 and the first home buyer intends to be an owner-occupier for 30 years, the following methods are used to calculate:

Transfer (stamp) duty

$9,805 plus $4.50 for every $100 over $327,000 of purchase price = $40,090 (upfront payment)

OR

Property tax

$400 plus 0.3% of land value (based on land value being $928,000) = $3,184 first year (payable annually and subject to indexation)

Over the 30 years, the total amount of property tax will be an estimate of $69,805 in present value terms.

For the same land value of $928,000, if the first home buyer intends to use the property for residential investment the property tax for the first year will be: $1,500 plus 1.1% of land value = $11,708 and over the 30 years, the total amount of property tax will be an estimate of $256,683.

First home buyers can compare property tax and stamp duty by using the property tax calculator available online on Service NSW: https://fhbcalculator.service.nsw.gov.au/.

If you would like to discuss how the First Home Buyer Choice Scheme affects you and your purchase, contact Solari and Stock Miranda on 8525 2700, or click here to request an appointment to meet with one of our experienced property team.

Article written by Judy Wong

Photo by Helena Lopes on Unsplash