Money talk

Buying a home in NSW? Find out what is stamp duty

19 January, 2023

Stamp duty is one of those costs that everyone has heard of but not everyone understands. In essence, stamp duty is a tax paid when you buy a home. In NSW, it’s officially called ‘transfer duty’ but we’ll refer to it as ‘stamp duty’ as that’s the most commonly used name. Let’s delve into stamp duty in NSW in more detail:

What is stamp duty?

If you think stamp duty sounds like an old-fashioned term more at home in renaissance Europe than modern-day Australia, you’re not far wrong! Stamp duty originated in Venice and Spain in the early 1600s.

Think of stamp duty as a tax that you pay when buying a property.

The idea was a payment to have a government officially physically stamp documents. The benefit for individuals was that the documents were then legally binding. The benefit for governments was to gain income and have a record of who owns which property.

In our digital age, documents are rarely literally stamped but the collection of stamp duty continues. NSW even had a Stamp Duties Act until 1997 when it was replaced with the more generic Duties Act. And, some states, including NSW, are starting to phase out stamp duty and replace it with an annual land or property tax.

Who collects stamp duty?

Within Australia, the collection of duties is a state and territory responsibility, so details and amounts payable vary from state to state. This article focuses on stamp duty in New South Wales (NSW).

The income the government gains from collecting stamp duty goes into general revenue along with taxes that pay for government services like hospitals, schools and roads. So, paying it is not a bad thing in principle but there’s no doubt a stamp duty bill can hit hard financially among all the other costs associated with buying a home.

How much is stamp duty in NSW?

As we’ve mentioned, stamp duty amounts vary between Australian states. Within each state, stamp duty increases along with the price of the home (and changes each year according to inflation) but is usually within the tens of thousands of dollars.

As a ballpark estimate, for a non-first home buyer a home in NSW worth $850,000 would attract stamp duty of $33,648, whereas one worth $1 million means stamp duty of $40,398.

So, what is the formula for stamp duty in NSW? The easiest way to estimate stamp duty is to use the Revenue NSW Calculator. This calculator talks about ‘land’ but this is the option you should choose whether you are buying vacant land, a house or a house-and-land package. You can use the calculator experiment with different purchase prices.

Stamp duty is an ‘upfront cost’, meaning that you need to have the funds available rather than adding the amount to your home loan. Check with your mortgage broker for specific details and, if you are concerned about how you’ll finance your new home, read some great tips here.

Two pieces of good news if you’re considering purchasing a house and land package, like one of Rawson Homes quality options:

You pay stamp duty only on the value of the land
Stamp duty is significantly less when buying land rather than an already complete property. That can constitute a major saving, especially for someone making their first move onto the property ladder.
You can apply to defer your stamp duty payment for up to 12 months

When buying a home off-the-plan to use as your main place of residence, you can delay payment of your duty to whichever of these two options happens later:

a. The date the property is handed over (after completion), or
b. For 12 months following the signing of you agreement

Is there a discount for first home buyers? Can stamp duty be free in NSW?

If you’re asking yourself ‘How do I avoid stamp duty in NSW?’ or ‘Is stamp duty ever free in NSW?’, you’ll be pleased to hear that, if you are a first home buyer, you’re eligible for reduced stamp duty through a scheme called the First Home Buyer Assistance Scheme (FHBAS).

If your home costs less than $650,000, you’re eligible for a duty exemption. Yes, you heard that right - in NSW, first home buyers purchasing a property under $650,000 (or land valued at less than $350,000) will not pay stamp duty.

If your chosen home costs between $650,000 and $800,000, first home buyers are eligible for a reduction on stamp duty (if you are buying land, the amounts are between $350,000 and $450,000).

To be eligible for the First Home Buyer Assistance Scheme, you need to be an Australian citizen or permanent resident. You can be buying an existing home, a newly built home or vacant land on which you intend to build a home.

You must move into the home within 12 months of purchase and live there for at least six months continuously. The scheme is not available for holiday homes or properties that include a business.

If your first home will cost between $650,000 and $800,000, you can calculate how much stamp duty you will pay, as well as how much the First Home Buyer Assistance Scheme will save you by using a stamp duty calculator - we recommend the NSW Government First Home Buyers Revenue calculator.

Of course, many homes are now priced at well over $800,000. In fact, the Australian Bureau of Statistics says that the mean price of residential dwellings in NSW is over $1.1 million (the highest in Australia).

Is the FHBAS different to the First Home Owner Grant?

If you buy a property for your first home that’s newly-built, in addition to the exemptions or concessions offered through the First Home Buyers Assistance Scheme, you are also eligible for the First Home Owners Grant (FHOG), which offers $10,000 towards the cost of a newly built home.

It can be for a house, apartment, townhouse or unit for which the land and building is worth less than $750,000. The grant is just one of the many benefits of house and land packages.

I’ve also heard I have a choice to pay a smaller amount each year instead of stamp duty?

Yes! In the 2022-2023 Budget delivered on 21June 2022, the state Government announced that first home buyers who are purchasing a property in NSW worth up to $1.5 million will have a choice between paying:

* A one-off stamp duty amount
* A smaller but annual property tax.

Appropriately, the initiative is called First Home Buyer Choice and comes into effect in mid-January 2023. You can find out more about this in our article about annual property tax in NSW.

So that’s our wrap up of stamp duty (or ‘transfer duty’) in NSW. If you’re interested in taking advantage of the stamp duty advantages of building a new home, our team of friendly consultants are happy to help. Just call 1300 223 345 or contact us by email.