The property tax choice for NSW first home buyers
The bill is lengthy (38 pages) and complex. The Cross Benchers have said it will be sent to an Upper House Committee for a short review and at least some minor changes are expected. Rather than communicate the technical features of the Property Tax Bill at this point, here we explain the new tax by way of a comparative example between two prospective first home buyers.
Example 1 - Placido buys the family home
On 30 June 2023, Placido buys a free standing house in Western Sydney for $1,350,000. He intends it to be his family home for at least 30 years. If he is required to move interstate with his business, he will then lease the property to tenants.
From the Service NSW Property Tax Calculator, Placido discovers the following:
- Transfer Duty on the purchase will be $58,450.
- Property Tax will be $2,830 for the 2023-24 year (calculated as $400 plus 0.3% of the Valuer General unimproved land value of $810,000) and expected to increase slightly each year thereafter (any yearly increase is capped at 4%); and
- Property Tax, if he does let to tenants, will be at least $10,410 annually based on 2023-24 values (calculated as $1,500 plus 1.1% of the unimproved land value).
Placido recognises that the net present value of his annual Property Tax payments will be much less than the sum of the annual amounts. Even catering for that, as Placido intends to live in the house for 30 years, he estimates he will pay slightly more tax overall if he elects the annual Property Tax. However, he recognises that if he rented the house, even for just 1-2 years, the total Property Tax payments will significantly exceed the duty. As renting it is a real possibility for him, he decides to pay the upfront duty liability of $58,450.
Example 2 - Joan secures an apartment
Joan lived frugally at her parent’s home in the inner west in her first three years of teaching. She has saved enough for a deposit on a ground floor apartment near Liverpool which will cost her $830,000. Her intention is to live there for ten years before, hopefully, buying a duplex near her parents.
From the Property Tax Calculator, Joan determines that:
- Transfer Duty on the apartment purchase will be $32,440; and
- Property Tax will be $1,195 for the 2023-24 year (calculated as $400 plus 0.3% of the Valuer General unimproved land value of $265,000) with a small annual increase.
For her expected holding period of ten years, the sum of the annual Property Tax will be $11,950 plus the small annual increases. Under any calculations, the total Property Tax will be significantly less than her upfront duty so she makes that choice. Her bank has also told her it will have less effect on her borrowing capacity.
Joan settles on her apartment on 30 June 2023. She receives her 2023-24 Property Tax Assessment for $1,195 on 31 July 2023. She takes up the option of paying the tax in four quarterly installments of $298.75 on 31 August 2023, 30 November 2023, 28 February 2024 and 31 May 2024.
In future editions, we will present more detail on the technical features of the new tax.
Should you require further information, or advice in relation to these matters, please contact our Indirect Tax specialist Stephen Baxter, alternatively you can contact your usual Mazars advisor via phone or the form below:
Author: Stephen Baxter
Sydney – Stephen Baxter | Melbourne – Evan Beissel | Brisbane - Jamie Towers |
+61 2 9922 1166 | +61 3 9252 0800 | +61 7 3218 3900 |
Published: 17/10/2022
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