The Property Tax (First Home Buyer Choice) Act 60 of 2022 received assent on Friday 11 November 2022. This constitutes landmark reform for New South Wales.
As discussed in our previous article NSW Changes to Property Taxes - 5 top tips, the First Home Buyer Choice scheme gives first home buyers a choice when buying a home as to whether to pay up-front duty or opt into a small annual property tax.
Overall, rates of home ownership in NSW have fallen from 70% in the 1990's to 64% in 2021. First home buyers are taking longer than ever to save for the up-front costs of purchasing property. The First Home Buyer Choice scheme aims to unlock the door to home ownership by allowing eligible buyers to choose the option that best suits their personal and financial circumstances.
Eligible first home buyers can access the scheme for contracts entered into from 11 November 2022. Until 15 January 2023, these buyers will be required to pay duty and can apply for a refund once the property tax scheme commences on 16 January 2023.
For contracts entered into from 16 January 2023, purchasers can opt-in to pay the annual property tax directly and will not have to pay duty.
The NSW government has allocated $728.6 million to First Home Buyer Choice over the next four years.
The property tax option is only available to first home buyers (consistent with the criteria for the First Home Buyers Assistance Scheme for exempt or concessional stamp duty) buying a property for up to $1.5 million. For people buying vacant land (excluding farmland), with the intention of building their first home, the purchase price can be up to $800,000.
The first home buyer must occupy the property within 12 months and live in it continuously for at least 6 months. However, the Chief Commissioner will have the discretion to vary or to waive this residency requirement if there are extenuating circumstances.
Subsequent purchasers or transferees of a property will be required to pay stamp duty unless they are also an eligible first home buyer and they choose to pay the property tax.
A savings opportunity
For owner-occupiers, the initial property tax rates will be $400 plus 0.3% of the home's land value (determined by the Valuer General). If the property is rented, an investor rate of $1,500, plus 1.1% of land value applies.
For FY2024-25 and subsequent financial years, the tax rates will be indexed each year and capped at a maximum of 4%.
NSW Treasury data shows the breakeven period between upfront duty and an annual property tax would be 36 years for an $800,000 apartment, 28 years for a $1 million townhouse, and 26 years for a $1.25 million house. The same data shows that if a first home buyer purchased a $1million house and sold it in 10 years' time, the total property tax paid over the 10 years would be $19,881 compared with $40,090 in stamp duty, resulting in a saving of $20,209.
To assist eligible first home buyers in making the choice between property tax and duty, the Government has provided an online property tax calculator.
Shared Equity Scheme
Coinciding with the First Home buyer Choice scheme is the passing of the Treasury and Energy Legislation Amendment Bill 2022 (Bill) on 8 November 2022. The Bill gives the Treasurer power to establish a Shared Equity Scheme and issue policy guidelines. These guidelines (once released) will outline the eligibility criteria, obligations, conditions and processes for the scheme.
Our previous article NSW Changes to Property Taxes - 5 top tips highlights that the shared equity scheme will allow the Government to share the cost of purchasing a home with an eligible buyer in exchange for taking an equivalent equity share of up to 40% for a new dwelling and 30% for an existing dwelling.
The scheme is planned to begin in early 2023 and will run for FY2023 and FY2024 with only 3,000 places available per financial year. The scheme is open to single parents of children under 18, single persons of 50 years of age, first home buyer nurses, teachers and police with a gross household income of no more than $90,000 for singles and $120,000 for couples.
Each year following the property purchase, participants will need to complete an annual review to show their continued eligibility for the scheme. A participant may be required to begin repaying the Government's equity contribution in certain situations (i.e., where they no longer meet eligibility criteria).
These measures provide opportunity for many people to get into the housing market. If you are looking to purchase a first home, or are supporting children to purchase a new home including a transfer of an existing property or development from a company, trust, SMSF or deceased estate, please contact us. We provide State and Federal taxation advice including duties, land tax, foreign surcharges and how to access the CGT main residence exemption to help you with your structuring, wealth protection, estate and succession planning.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.