Published on 9 December, 2022 by Paul Alice and Alexandra Voysey
Commencement of the First Home Buyer Choice Scheme
The Property Tax (First Home Buyer Choice) Act 2022 (NSW) commences on 16 January 2023 allowing eligible first home buyers who enter into a Contract on or after 16 January 2023 to have the option of choosing between payments of annual property tax or stamp duty.
Eligible first home buyers who sign a contract to purchase between 11 November 2022 and 15 January 2023 also have the opportunity to opt into the property tax alternative. On or before 15 January 2023 if settlement takes place, eligible first home buyers will still need to pay stamp duty, though those buyers should be aware that they will be able to apply to Revenue NSW for a refund of that stamp duty after 16 January 2023 and then they will be able to opt into the annual property tax option. Where settlement has not taken place on or before 15 January 2023, then eligible first home buyers can apply to choose the property tax at a time between 16 January 2023 and 30 June 2023.
Off-the-plan Contracts
Application for the annual property tax is also an option to eligible first home buyers who entered into off-the-plan Contracts between 11 November 2021 with settlement due on or after 11 November 2022. For off-the-plan purchase Contracts signed on or after 11 November 2021, where settlement takes place between 11 November 2022 and 15 January 2023, stamp duty will need to be paid by first home buyers, and then they can apply to Revenue NSW for a refund of that stamp duty. Applications for opting into the property tax can be made between 16 January 2023 and 30 June 2023. Upon Revenue NSW processing the application, a first home buyer will not be able to withdraw from their decision of choosing to opt into the property tax.
First Home Buyers
First home buyers should keep in mind that an application to choose the annual property tax rather than stamp duty must be made prior to settlement. If the buyers want to make any changes to the choice they made, this cannot be done post settlement, however, if the buyers choose to sell their property, the new purchaser will not be bound by the seller’s decision to choose annual property tax instead of stamp duty if they are also eligible first home buyers; they will have the option to either pay stamp duty or an annual property tax.
First Home Buyer Choice Calculator
The First Home Buyer Choice calculator is an online calculator available to assist first home buyers making an informed choice between paying upfront stamp duty or the annual property tax. The calculator is accessible at https://fhbcalculator.service.nsw.gov.au/.
Annual Property Tax Rates
The annual property tax rates for 2022-2023 are:
- $400.00 plus 0.3% of land value for owner occupied properties;
- $1,500.00 plus 1.1% of land value for investment properties,
subject to indexing per year in line with average annual incomes (currently a 4% cap applies).
Assessing Annual Property Tax
Annual property tax is assessed for each financial year, payment of which can be made in quarterly or annual instalments.
As a consequence of opting into the annual property tax instead of stamp duty you will likely be paying higher amounts each year that you own the property, as land values increase.
If you satisfy the residency requirement and reside at the property continuously for a period of at least 6 months within 12 months of purchasing, the property can then be used for investment purposes (this will attract an annual property tax at the higher rate).
Revenue NSW are required to be notified of the change in use if you choose to convert the property into an investment property. This will permit Revenue NSW to amend the annual property tax rate you are to pay.
Eligibility for the First Home Buyers Scheme
A purchaser must satisfy the following to be eligible for the First Home Buyers Choice Scheme:
- Be an individual over the age of 18;
- Be an Australian citizen or permanent resident;
- Never have owned property in Australia or previously;
- Must not have been in receipt of First Home Buyer Grant or duty concession previously;
- Be purchasing a new or existing property less than or equal to $1.5 million or otherwise, vacant land intended for the construction of a first home less than or equal to $800,000; and
- Be moving into the property within 12 months of purchasing and living in it continuously for a period of at least 6 months.
First Home Buyer Options: Annual Property Tax or Stamp Duty?
For first home buyers who expect to own their property for a significant period of time, it must be carefully considered whether opting into annual property tax, or electing to pay stamp duty is the most suitable option.
For first home buyers that expect to own their property for an extensive period of time, paying stamp duty upfront may prove to be a more suitable option for money saving in the longer-term. However, first home buyers who expect to own the property for a shorter period of time may opt for payment of annual property tax as being more appropriate.
We can assist
Please do not hesitate to reach out to our team here at Colquhoun & Colquhoun if you have any questions concerning the new Scheme and your property purchase.