How do you choose between the NSW Annual Property Tax or Stamp Duty?

Limited to first home buyers, a new NSW government initiative was introduced starting from 16 January 2023.  First home buyers purchasing their first homes, valued at up to $1.5 million (or vacant land valued up to $800,000), will have the option to decide between paying stamp duty (referred to as 'transfer duty' in NSW) or an annual property tax (commonly known as 'land tax'). Historically, stamp duty has been a large, undesirable expense associated with home purchases. The NSW Government aims to assist first home buyers by introducing the First Home Buyer Choice initiative. For information regarding the program, including eligibility requirements and terms and conditions, refer to the NSW government website: https://www.nsw.gov.au/initiative/first-home-buyer-choice .

What’s stamp duty? 

The burden of stamp duty can be overwhelming, especially for first home buyers who struggle to save a deposit in today's rapidly escalating housing market. Stamp duty is also known as transfer duty. Typically a one-time tax, and often amounting to tens of thousands of dollars, stamp duty is charged when property or land is acquired.  

To learn more about stamp duty, talk to one of our team today. 

Why would I choose an annual property tax vs stamp duty?

Opting for a smaller annual property tax instead of a large one-time payment upon purchasing a home could significantly lower the barrier to homeownership. 

The annual property scheme could make it considerably more manageable and easier to plan and save, compared to the upfront expense of tens of thousands of dollars associated with the once-off stamp duty. 

Why is the choice between stamp duty and property tax only available to first home buyers? 

The NSW Government initially expressed the intention to extend the choice between stamp duty and property tax to a larger portion of the population, potentially encompassing up to 80 percent of all home buyers. 

While this broader implementation may occur in the future, the decision to offer the option to first home buyers serves as a trial for the scheme, prioritising those who are disproportionately impacted by an upfront stamp duty. 

This approach is a positive step forward, considering that home ownership rates, as per NSW Government statistics, have declined from approximately 70 percent in the 1990s to less than 65 percent today. The younger generation and individuals with lower incomes face significant challenges in saving enough for a deposit and other upfront expenses, making it particularly difficult for them to enter the housing market. 

So…how do I calculate the property tax? 

Here’s the formula below: 

Annual property tax = $400 + 0.3 percent of land value 
The tax will be increased annually in line with inflation but this will be capped at 4 percent.

The ABC explains it like this: 

Let’s take an example of a first home buyer – for the purposes of this example, Jane. If Jane buys a $1.35m house with land value of $810,000 she can choose to pay either: 

A. Stamp duty = $59,125 upfront 

B. Property tax = $2,830 per year. 

Opting for the new property tax option would be financially advantageous for Jane if she resides in the home for less than 20 years before deciding to move.  

What other schemes could I be eligible for?  

In addition to this newly introduced option, other first home buyer schemes will remain available for purchasing property in NSW. 

The First Home Buyer Assistance Scheme (FHBAS) provides an exemption from stamp duty, known as 'transfer duty,' for properties valued below $650,000 (or vacant land priced below $350,000). Additionally, concessions are offered for homes up to $800,000 (or vacant land valued up to $450,000) under this scheme. 

Furthermore, there is the First Home Owners Grant (FHOG), which grants $10,000 towards the expenses associated with purchasing a newly constructed home valued below $750,000. 

Is the annual property tax available elsewhere in Australia? 

Currently, NSW stands as the sole state in Australia that grants first home buyers the option to choose between stamp duty and property tax. 

The ACT government took the initiative to gradually eliminate stamp duty starting from 2012. This phased approach spans over a 20-year period, ensuring that current homeowners are not adversely impacted by the transition. 

It is highly probable that, in due course, other states may adopt either or both of these approaches, following the footsteps of the NSW and the ACT government. 

How do I choose between the annual property tax or once-off stamp duty?  

Having options is often touted as a positive thing, but it can also present challenges, especially when you're already navigating numerous decisions related to choosing and financing your new home.

If you're a first home buyer in NSW, here’s how you can make your choice!

1. Understand: Familiarise yourself with the distinctions between paying a one-time stamp duty or an annual property tax. By reading this article, you've already completed this crucial first step.
   
2. Calculate: Utilise the NSW Government's calculator to compare the costs of property tax versus stamp (or transfer) duty. Use the calculator multiple times if you're exploring different properties or house-and-land packages.
   
   
3. Look ahead: While you can't predict the future, consider whether your first house is likely to be your long-term residence or if you anticipate moving within the next decade or so. The sooner you anticipate moving, the more financially advantageous choosing the annual property tax option may be.
   
   
4. Current finances: If you have enough savings to cover both the deposit and stamp duty, the once-off stamp duty option could be for you! However, if you have a deposit but lack sufficient savings for stamp duty, selecting the annual property tax option could expedite your entry into homeownership. 

To gain a better understanding of how these factors apply to various scenarios, visit the NSW First Home Buyer Choice website for additional examples, like Jane’s example above.  

The introduction of the choice between an annual property tax and stamp duty marks a significant shift in purchase-based taxation, representing the first major change in a considerable period of time. This development brings positive news, especially for first home buyers like yourself! 

Ready to take the next steps with a house and land package? Enquire with our friendly team today – call us at 1300 921 383, or fill out this form!