- Eligible First Home Buyers can now opt out of paying Stamp Duty in NSW and opt into paying an annual property tax, to avoid the additional up-front cost.
- First Home Buyers who have purchased since 11 November 2022 can also opt into the annual property tax and have their stamp duty payment refunded by NSW Revenue
When purchasing a property, Stamp duty is required to be paid on the purchase price, either at settlement or prior to the settlement, depending on when settlement is due; this applies to all purchase transactions. The NSW Government has now introduced The First Home Buyer Choice (FHBC) which came into effect on the 16 January 2022, allowing eligible first home buyers the option of either paying the full stamp duty amount at settlement with any applicable concessions or paying an annual property tax instead.
What is Stamp Duty
Stamp duty is a one-off payment made at settlement of a property purchase by the purchaser. Stamp duty is calculated on the Purchase price or market value, depending on what is higher. Currently, First Home buyers can apply for certain concessions or exemptions if their purchase price does not exceed the thresholds applied by Revenue NSW. If no applicable stamp duty exemptions apply, Stamp duty, unfortunately, cannot be delayed and must be paid not later than settlement or else settlement cannot proceed, leading to a purchaser’s up-front costs increasing.
What is Annual Property Tax
The annual property tax is a yearly payment based on the land value of the property purchased. The current 2022/2023 rates for the annual land tax are as follows:
- $400 plus 0.3% of the land value for owner-occupied property
- $1,500 plus $1.1% of land value for investment property
The property tax rates can and likely will increase over time.
It is also worth noting that non-owner occupied rates can be charged for vacant land purchases until the property is constructed.
The tax will be calculated using land values from the previous financial year.
To be eligible for FHBC and pay an annual property tax instead of stamp duty purchasers must meet the following requirements:
- You must be an individual (not a company or a trust);
- You must be 18 years old or over;
- At least one Purchaser must be an Australian citizen or permanent resident;
- You or your spouse must not have previously owned or co-owned property in Australia or previously received a duty concession of First Home Buyer Grant;
- Any residential property must not exceed a purchase price of $1.5 million and a purchase of vacant land, cannot have a purchase price that exceeds $800,000;
- The property must be a residential property;
- You must move into the property within 12 months of the purchase and live in it continuously for a minimum of 6 months;
- Vacant land only applies if it is for residential use, owners move in once construction is complete and reside in the property for minimum continuous 6 months and construction on the land occurs within 2 years of completion; and
- You must sign or have signed the Contract of purchase on or after 11 November 2022. Off the plan purchase Contracts that were entered into after 11 November 2021 may also qualify for FHBC.
Eligible purchasers can opt into the annual property tax with ineligible purchasers as long as the eligible purchaser’s share in the property is not less than 50%.
If only one of the multiple purchasers meets the eligibility criteria to opt into the annual property tax, any other purchasers will still be required to pay stamp duty on their share on a pro-rata basis.
If there is more than one purchaser and all are eligible to opt into the annual property tax, all purchasers are jointly and severally liable for the property tax. This means if you pay your share of the property tax and the other party(ies) does not, you are still liable for any outstanding amount.
Change in Land Use
If during your ownership the land use changes from owner-occupied to investment or any other change in use, you must notify NSW Revenue within 3 months from the change in use and the annual land tax will be adjusted according to the new usage.
There is a cap of 4% on the tax if the purchaser’s use of the land does not change from the previous year.
If the land use does change through the year, the 4% cap will only be applied to the portion of the tax bill where the same usage is maintained, thereafter the cap will not apply. However, if the use changes and the change applies to the full year, no cap will be applied to the tax bill at all.
What happens when the property is sold?
When the property is sold by a purchaser who did opt into the annual property tax, any outstanding property tax is payable on the sale settlement.
If the new purchasers do not wish to opt into the annual property tax or are ineligible to do so the property tax status, simply drops off the property and the owners who had opted into the tax.
If the new owners wish to opt into the property tax and are eligible to do so, the property tax will be reassessed and new assessments for property tax will then be issued to the new purchasers.
The annual property tax, if opted into, remains on the land for the duration of that purchaser’s ownership. A purchaser should seriously consider the length of time they will plan to own the property for as the short-term gain of not paying a lump sum at settlement may end up costing more in the long run if it is to be a forever home.
What if an owner dies?
If the purchaser who opted into the property tax passes away and the property passes to the other purchaser or another new owner, the properties tax status remains as annual property tax.
However, if the property passes to an Estate instead of a person, the property tax status simply drops off the property altogether.
What if my property has settled?
Eligible FHBC buyers who have settled property purchases between 11 November 2022 and 15 January 2023, can apply to Revenue NSW for a retrospective assessment and refund on any stamp duty paid if applicable. Any applications for a refund and re-assessment under the FHBC annual property tax must be submitted to Revenue NSW by no later than 30 June 2023.
What if I have purchased an off the plan property?
If an eligible FHBC buyers have entered into an off the plan Contract on or after 11 November 2021, they may also be able to apply retrospectively for a refund and re-assessment of stamp duty for any stamp duty already paid. An off the plan purchase only applies to the purchase of a residential dwelling which will be used as a purchasers main place of residence and not to vacant land.
ABOUT KAY VITOGIANNIS:
Kay has over 20 years of experience in the Legal industry. She began her journey in CBD Conveyancing firms as a secretary and attained her Advanced Diploma in Conveyancing in December 2010.
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This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.