What is the NSW First Home Buyer Choice?

What is it, and how might it affect your property purchase?

Key takeaways

• Recent legislative changes in NSW allow eligible first home buyers to choose to pay a yearly tax, rather than upfront transfer duty.
• Eligible purchasers of property with a contract date from 11 November 2022 may opt-in to the scheme.
• This new initiative is in addition to any grants or assistance currently on offer for first-time homeowners.

What is the NSW First Home Buyer Choice?

Under changes enacted in the Property Tax (First Home Buyers Choice) Act 2022, an eligible first home buyer purchasing a property worth up to A$1.5 million is able to choose to either pay an upfront amount for transfer duty or pay an annual property tax.

This is in addition to any first homeowner grants or assistance currently offered by the NSW Government. This assistance currently includes a grant of up to A$10,000 under the First Homeowners Grant (New Homes) Scheme and an exemption or reduction of transfer duty on the purchase of a home with a value of up to A$800,000 under the
First Home Buyer Assistance Scheme.

The changes allow a first home buyer buying either ‘residential land’ (a new or existing home) with a value up to and including A$1.5 million, or vacant land on which they intend to build a home, valued at up to and including A$800,000, to choose to pay either an annual tax or transfer duty. Should the first home buyer choose the annual tax, they would pay A$400 plus 0.3% of the land value of the property, per annum. Should the property later be used as an investment property, the annual property tax increases to A$1,500 plus 1.1% of the land value of the property.  

Tax assessments will be issued each financial year, and a pro rata adjustment will be made if the property is sold within that financial year.

By contrast, if the first home buyer choses to pay an upfront transfer duty, the amount payable is calculated using a sliding scale. For example, transfer duty on a property worth over A$1,089,000 is calculated at a rate of A$44,095 plus A$5.50 for every A$100 that the purchase price is over A$1,089,000. This means the duty payable on a property with a value of A$1.5 million would be A$66,700. 
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Once land subject to the property tax is sold or otherwise transferred to a new owner, the land will cease to be subject to the tax.

Who is eligible?

To be eligible under the  First Home Buyer Choice the purchaser must be:

• over 18;
• at least one buyer must be an Australian Citizen or permanent resident;
• neither purchaser, nor their spouse can have owned or co-owned residential property in Australia other than property owned solely as trustee or executor; and
• the purchaser must move into the property within 12 months and live in it continuously for at least 6 months.

Unlike the First Home Buyer Assistance Scheme, a purchaser of farming property on which there is a private dwelling, is not eligible to make the First Home Buyer Choice, even if the purchase price is under the eligibility threshold.  

It is important to note that if the first home buyer was eligible for a stamp duty exemption, then they would not choose to pay an annual property tax.  But for someone eligible for a concession or for someone not eligible for any concession or exemption, the annual property tax may be a better choice.                               

When did these changes commence?

This scheme will only apply to contracts entered into on or after 16 January 2023. Although, transitional exemptions will allow first home buyers who enter a contract between 11 November 2022, and 15 January 2023, to opt in, and apply for a refund of any transfer duty already paid.

How do I make this choice?

The “First Home Buyer” duties return document will be available from 16 January 2023, to process First Home Buyer Choice applications.

This transaction is to be made in one of two ways, depending on the date of settlement:
                                                           

• if a contract is entered into from 11 November 2022, to be settled before
  16 January 2023, duty must be paid at a settlement, and a refund request can be lodged between 16 January, and 30 June 2023; or
• if a contract is entered into from 11 November 2022, to be settled on or after
  16 January 2023, no upfront duty is to be paid. Instead, the settlement may be processed as a First Home Buyer choice transaction.

Once the property in question has been transferred, the decision to opt into paying property tax, or to pay transfer duty, is final, and cannot be changed. However, up until the time of transfer, the purchaser may change their mind.  

A contract for an off-the-plan purchase, entered into, and settled on or after  
11 November 2022 may also be eligible to opt-in to Property Tax, however this entails a different lodgement process to be undertaken by the conveyancing professional.  

It should be noted that Revenue NSW are offering exceptions, provided the purchaser may prove there to be “good reason” for such an exemption to be approved. Such approval may be sought for Revenue NSW to reduce the length of time for which the buyer is required to occupy the property, to commence occupation by the buyer at a later date, or to exempt a buyer from meeting the Australian residence requirement.  

Similarly, if a first home buyer is a member of the Australian Defence Force’s Permanent Forces, and is enrolled to vote in NSW State elections, the residence requirements do not have to be met.

Is it for me?

It is really a decision for any buyer eligible for the First Home Buyer Choice to choose the tax that is best for them.

Thought should be given as to how long they expect to hold the property and if they anticipate upgrading in the short to medium term, then the annual tax might be a good choice to take.

If, however, a buyer intends to occupy the property for 20+ years, then they may be better off choosing upfront transfer duty. 

Each buyer will have to weigh up this decision based on their own situation, and circumstances, combined with advice from their accountant or financial planner.

We can help you

If you have any questions, or would like more information about how we can assist you or your practice, please call 1800 867 113, or to organise a confidential discussion at a time that suits you, please click here