The NSW property tax has arrived
From 16 January 2023, the first home buyer property tax option will enable first home buyers to choose between paying:
an upfront stamp duty, or
an annual property tax.
Annual property tax option
First home buyer owner–occupiers who opt into the property tax will be charged at a rate made up of a fixed amount of $400 plus 0.3% of the unimproved land value of the property. These rates remain in place for each year the first home buyer remains an owner–occupier.
This tax rate remains in place for first home buyers until 1 July 2024 when both fixed and variable components will be used to calculate an annual property tax each year.
In the years following a first home purchase, the property tax will be indexed in line with average incomes across New South Wales. If you choose the annual property tax option, you will be issued a property tax assessment each year. This assessment will show the change in the property tax in line with the indexing.
Property criteria
The property tax option will be available to first home buyers on purchases of up to $1.5 million or $800,000 in the case of vacant land.
Unlike the current stamp duty concessions for first home buyers, there is no requirement that the property is part of a new build.
Primary production land is also eligible, but business premises and holiday homes are not.
Personal criteria
The first home buyers must be individuals. Companies and trusts are ineligible for the annual property tax. For you to be eligible, you must:
be 18 years or older
not have previously owned residential property in Australia or received a first home buyer grant and duty concession (including your spouse or co-purchaser)
be an Australian citizen or permanent resident. If there are 2 owners, at least 1 person must satisfy this requirement, and
live in the property as your principal place of residence for a continuous period of at least 6 months, commencing within 12 months of buying.
What if I moved out of my fist home?
If you opt-in to the annual property tax, the first home you purchase does not need to remain your principal place of residence forever. As long as you satisfy the initial residence requirement, you can choose to change the status of your property from owner-occupier to investor at a later point in time.
As an investor, your tax rate changes for the annual property tax to $1,500 plus 1.1% of the property's unimproved value. The increase in annual property tax will include NSW land tax, that is generally payable by owners of investment properties.
What if I choose to pay stamp duty?
First home buyers who choose to pay stamp duty upfront can still get access to the other stamp duty concessions available in NSW.
Under the current scheme, NSW stamp duty is exempt for:
purchase of new homes valued less than $600,000, and
comprehensive home building contracts (or owner builders) where the house and land is valued less than $750,000.
Transitional arrangements
If you bought your first home and you executed the contract between 11 November 2022 and 15 January 2023, you have the option to retrospectively opt-in for the annual property tax. If you choose to opt-in, you will need to do this before 30 June 2023. If you opt-in to the annual property tax, you will obtain a refund of the stamp duty already paid after your application is approved.
Please let us know if you would like more information about the NSW annual property tax for first home buyers. We would be delighted to help you by providing further advice, including detailed calculations if you need them.