From next year, some first home buyers in NSW will be able to choose between paying the lump sum of stamp duty or an annual land tax. To be clear, at present only first home buyers are eligible to pay the property tax. All other purchasers must continue to pay stamp duty as normal.

NSW treasurer Matt Kean pointed out that whilst first homebuyers will be “the only immediate beneficiaries” that they have plans to extend it.

"This is the first step in making sure that we start testing the waters for tax reform in New South Wales," said Mr Kean.

Under the plan first home buyers purchasing a property up to $1,500,000 can opt to pay an annual fee of $400 plus 0.3 per cent of the land value.

For example, buying a $1.35m house, with a land value of $810,000, the stamp duty would be $59,125.

But if a buyer is holding on to the property for less than 20 years, they are better off paying the $2,830-per-year land tax — which would total $56,600.

For apartments, the deal is better because land value is less.

An $830,000 apartment, with a $265,000 land value, would require an up-front payment of $32,440 stamp duty, or the buyer could pay $1,195-per-year land tax.

So why the sudden stamp duty reform?

According to former chief economist of REA Nerida Conisbee "For most first-time buyers,the biggest challenge is getting that initial deposit together.”

"If a first-time buyer doesn't need to pay $20,000-$30,000 in stamp duty to buy their first home, it allows them to get in a bit earlier and certainly with a much smaller deposit."

But it will cost the NSW government a lot of money to make changes to stamp duty, which is a key stream of revenue.

"It's a big revenue earner, it accounts for around a quarter of total revenue for the state government," Ms Conisbee said.

"Moving to a land tax system will take a lot of work, for people to get used to paying an annual land tax and for the government coffers to get used to less revenue."

Executive Director Luke Achterstraat of the Property Council of NSW believes that despite stamp duty being a good revenue raiser, it is not good for much else.

"Stamp duty is volatile, it's inefficient, it actually traps people in their homes," he said.

"People feel they've made a really significant cost to purchase a property, so stay in their homes for longer than really is appropriate.

Mr Achterstraat says stamp duty is a "triple threat" that is bad for home ownership, household mobility and jobs.

"What the government's done is put a bit of a stake in the ground and say we're going to trial this change."

Eligibility

If you are eligible, you can choose between (a) paying the usual amount of stamp duty based on the ‘dutiable value’ of your property; or (b) paying an annual property tax based on the unimproved land value of the property. Existing first home buyer duty exemptions and concessions are not changing.

To  be eligible:

• you must be an individual (not a company or trust).
• you must be over 18 years old.
• you, or at least one person you’re buying with, must be an Australian citizen or permanent resident.
• you or your spouse must not have previously owned or co-owned residential property in Australia received a First Home Buyer Grant or duty concessions.
• The property you are buying must be worth less than or equal to $1.5 million.
• You must move into the property within 12 months of purchase and live in it continuously for at least 6 months.
• You must sign the contract of purchase on or after the scheme commencement date, currently stated to be the 16th of January 2023.

What happens when a property that is subject to the new property tax is sold?

If you are buying a property from somebody who is paying the property tax, you will not be subject to the property tax (unless you are also an eligible first home buyer and you choose to pay the property tax).

For more information click on the link to the NSW Government Website - First Home Buyer Choice - https://www.nsw.gov.au/initiative/first-home-buyer-choice  (*source NSW Government website; ABC)

* This information is general in nature and not intended to be financial advice.  

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