Eligible first home buyers can now choose between land tax and stamp duty. This is a result of The Property Tax (First Home Buyer Choice) Act 2022, which took effect on 16 January 2023. Here we look at the details of these changes and what to consider when choosing between stamp duty and land tax.
What is First Home Buyer Choice?
As a result of the new legislation, first home buyers purchasing a new or existing home for up to $1.5 million can choose to pay the upfront stamp duty or an annual property tax. The value of purchasing vacant land to build a first home is up to $800,000.
First home buyers purchasing a property up to $650,000 are still eligible for existing stamp duty concessions and exemptions. For this reason, these buyers are not expected to choose property tax.
If you’re an eligible first home buyer purchasing a property between $650,000 to $1.5 million, you’ll want to compare the estimated land tax and stamp duty to decide.
Are you an eligible first home buyer?
As you need to be an eligible first home buyer to have the choice between stamp duty vs land tax in NSW. To qualify, you must:
- Be an individual (not a company or trust)
- Be over 18 years old
- Be an Australian citizen or permanent resident, or purchase the home with an Australian citizen or permanent resident
- Not (and your spouse) have previously owned or co-owned residential property in Australia, nor received a First Home Buyer Grant or duty concessions
- Be buying a home worth less than or equal to $1.5 million
- Move into the property within 12 months of purchase and live in it continuously for at least six months
- Must have signed the purchase contract on or after 11 November 2022.
Should you pay stamp duty in NSW or annual land tax?
To make an accurate comparison, we need to understand the amount of each type of tax. Annual land tax is based on the land value of the property purchased. In 2022 – 2023, the rates are:
- $400 plus 0.3% of the land value for owner-occupied properties
- $1,500 plus 1.1% of the land value for investment properties.
The rates are indexed yearly so that the average property tax payment increases with the average income.
The following table shows how to calculate stamp duty.
Property value Stamp duty (transfer duty) rate
$0 to $15,000 $1.25 for every $100 (minimum $10)
$15,000 to $32,000 $187 plus $1.50 for every $100 over $15,000
$32,000 to $87,000 $442 plus $1.75 for every $100 over $32,000
$87,000 to $327,000 $1,405 plus $3.50 for every $100 over $87,000
$327,000 to $1,089,000 $9,805 plus $4.50 for every $100 over $327,000
Over $1,089,000 $44,095 plus $5.50 for every $100 over $1,089,000
Over $3,268,000 $163,940 plus $7.00 for every $100 over $3,268,000
You can use the NSW Government’s First Home Buyer’s Choice Calculator to show you the cost of each option, but you need to enter the property address, which will show the estimated land value. The calculator also asks you how long you expect to keep the property. Most people don’t know how long they plan to live in a property or keep it as an investment. Many factors come into play when relocating or upgrading a home, so this point will be difficult for most people to determine confidently. The same is true if the home eventually becomes an investment.
Example of land tax vs stamp duty
The real estate website Domain.com provides an example of purchasing a property with a purchase price of $1.2 million. If the purchaser opts to pay stamp duty, the total amount is $50,875. If the choice is to pay land tax, this amount is $2,650 per year (based on a land value of $750,000).
Given these numbers, it will take 17 years of annual tax payments to equal the amount of stamp duty paid. Other factors come into play, including annual tax increases as the land value increases, but these can be difficult to predict years in advance.
Making a decision
With many factors in determining the best option, an accountant can help you review the potential scenarios. The economic environment with increasing interest rates makes it even more important to weigh the options when planning your finances.
Get in touch with an expert at Equil Advisory to discuss the tax impacts of your home or land purchases.
