What is the NSW First Home Buyer Choice? – Property Taxes

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
theFirst 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. ?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.

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.

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