The State Budget released on 21 June 2022 had few surprises, as the Government had leaked most of its initiatives over the previous couple of weeks.
The most significant announcements in relation to taxation relate to property. The following sets out what you need to know.
An option to NOT pay stamp duty
Eligible first home buyers will be given an option of either paying stamp duty upfront or paying an annual property tax when purchasing their first home of up to $1.5 million.
The new annual property tax will be calculated as $400 plus 0.3% of the unimproved land value of the property. The unimproved land value is not the amount paid for the property. This unimproved land value is the same land value used by local Councils to determine council rates and is often up to 50% less than the improved property value.
The tax rates will be indexed each year, so that the average property tax payment rises in line with average incomes.
Overall, the annual property tax represents a considerable upfront cash saving. However, in the longer term it may cost more if the property is held for many years, so it is very important to do your numbers before opting in. The Government has promised that a property tax calculator will be available to assist first home buyers in understanding their choice.
The following example illustrates the potential for the savings in opting out of stamp duty.
Sam is buying his first home, a $1.2 million townhouse in Newcastle. The unimproved land value of this property is $720,000. The stamp duty on this purchase is $50,875.
If Sam opted out of stamp duty, Sam’s annual property tax for 2022-23 would be
Sam is not sure how long he will own the property, but he has plans to ultimately move back to Sydney within the next ten years.
Not having to pay stamp duty helps Sam to lower the up-front costs of the purchase, so Sam chooses the annual property tax.
What if you do not live in the home?
If the first home buyer decides to move out of their home and decides to rent the property, this will change the status of their home to a residential investment property. The annual property tax will be calculated as $1,500 + 1.1% of the unimproved land value.
When does it apply?
The choice to opt into the scheme will be available from 16 January 2023. Where contracts are exchanged in the period between the enactment of legislation and 15 January 2023, eligible first home buyers will be able apply to opt in and receive a refund of stamp duty after 16 January 2023.
Increase Land Tax for foreign landowners
Foreigners who own residential property located in NSW will see their annual Land Tax rate increased from 2% to 4% from the 2023 land tax year (from 1 Jan 2023) which is said to generate approx. $294 million over a 4-year period.
Foreign investors include discretionary trusts that have not excluded foreign persons as beneficiaries.
If you would like to learn more about the above, please contact Calibre Business Advisory on (02) 9261 2177, and our dedicated team will be more than happy to assist.