First Home Buyer Choice Explained: Should you pay NSW stamp duty or property tax?

The First Home Buyer Choice allows first-home buyers to choose between stamp duty or annual property tax. Which is better, stamp duty or property tax?
joseph@itssimple.com.au

joseph@itssimple.com.au

January 12, 2023

The First Home Buyer Choice makes purchasing a home in New South Wales easier by allowing first-home buyers to choose between paying stamp duty or an annual property tax. Understanding how the scheme works can help you decide whether transfer duty or property tax saves you more. 

In this article, we reveal what the First Home Buyer Choice is, who is eligible for the annual property tax and how to apply for the scheme to help you find the right option for your goals. 

What is the First Home Buyer Choice?

First Home Buyer Choice Explained: Should you pay NSW stamp duty or property tax?

The First Home Buyer Choice scheme is designed by the NSW government to lower the barriers to buying a home. Aside from saving a deposit for your home loan, another repayment you need to consider is stamp duty. The scheme provides a choice to eligible buyers to either opt-in for a smaller annual property tax or pay stamp duty upfront. 

Stamp duty or transfer duty is a tax charged by the state and territory governments when you buy a property or other assets. It’s one of the largest upfront costs when purchasing a home in Australia. 

This means first-home buyers who choose to pay property tax won’t have to save as much before purchasing a property. 

The stamp duty change commences on 16 January 2023. For contracts entered on 11 November 2022 to 15 January 2023, buyers will be required to pay stamp duty and apply for a refund starting on 16 January 2023 if they choose to opt-in for the First Home Buyer Choice.

The property tax is only available to first-home buyers and will not apply to subsequent purchasers of a property.

What properties are eligible to opt into property tax?

First Home Buyer Choice Explained: Should you pay NSW stamp duty or property tax?

The First Home Buyer Choice is available to new or existing homes in NSW with a value of up to $1.5 million. Vacant land in NSW is also eligible provided that its value is up to $800,000, and you intend to build your first home there. 

However, primary production land, land used for business or a business premise and holiday homes are not eligible for the scheme. 

For off-the-plan purchases made on or after 11 November 2022, you can still opt-in for the property tax if the purchase has not been settled before 11 November 2022

Who is eligible for the First Home Buyer Choice?

To be eligible for the First Home Buyer Choice, you must: 

  • Be an individual (not a company or trust)
  • Be over 18 years old
  • Be an Australian citizen or permanent resident (or at least one person you’re buying with should be)
  • Sign the agreement for the sale or transfer of land on or after the initiative commencement date 
  • Occupy the new or existing home as the principal place of residence for a continuous period of at least 6 months (occupation starts within 12 months after settlement)

You or your spouse shouldn’t have previously:

  • Owned or co-owned residential property in Australia
  • Received the First Home Buyer Grant or stamp duty concessions

If you’re buying vacant land, you should meet the following requirements for the owner-occupier rate to apply for up to 5 years:

  • After completion of the construction, the land must be your principal place of residence for a continuous period of at least 6 months
  • Construction on the land should commence within 2 years
  • You can’t derive an income from the land
  • You haven’t or do not own another land

Some eligibility criteria may vary depending on your situation. It’s best to contact Revenue NSW for more information.

How is property tax calculated?

First Home Buyer Choice Explained: Should you pay NSW stamp duty or property tax?

With the new option available, your property tax payments will be based on the property’s land value:

  • $400 plus 0.3% of land value for owner-occupied properties 
  • $1,500 plus 1.1% of land value for investment properties

To give you an idea of how much you will pay, let’s say you want to purchase a property in Sydney worth $800,000 with a land value of $250,000. If you pay stamp duty, it will cost you around $31,090.

However, if you choose to pay the property tax, you need to pay $400 plus 0.3% of the land value. This means you only need to pay $1,150 annually:

400 + (0.003 x 250,000) = $1,150

On average, you will pay around $34,500 for 30 years if you choose the property tax. While this option will cost you more, it also means you won’t have to pay a huge upfront cost in one go. 

If you also plan to hold the property for only a few years before selling and upgrading, paying the annual property tax will be more cost-effective.

The NSW Treasury’s calculations below show how long it will take for you to break even between upfront stamp duty and annual property tax: 

First Home Buyer Choice Explained: Should you pay NSW stamp duty or property tax?

You can also use the First Home Buyer Choice calculator to have an idea of how much property tax you need to pay. 

How to apply for the First Home Buyer Choice?

To apply for the First Home Buyer Choice scheme, you need to fill in forms and have your conveyancer or solicitor lodge your application with Revenue NSW. You also need to supply some documents, including: 

  • Full signed copy of the contract
  • Completed ODA 076i Purchaser/transferee declarations for each purchaser/transferee (original forms that were submitted with your assessment)
  • Duties Notice of Assessment
  • Evidence settlement has occurred (settlement statement, title search)
  • Proof of identity documents

First Home Buyer FAQs

How much does stamp duty cost?

Stamp duty rates vary per state and territory, but it’s usually calculated as a percentage of the property’s value. So, the higher your home or land price, the higher your stamp duty is. 

For example, here are NSW’s stamp duty rates:

Property valueTransfer 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

Fortunately, first-home buyers may avoid paying stamp duty if they meet certain criteria:

  • NSW: The First Home Buyer’s Assistance Scheme (FHBAS) offers a full stamp duty exemption for properties under $650,000. If purchasing vacant land under $350,000, you also won’t pay stamp duty.
  • Queensland: If the home is under $500,000 or the vacant land under $250,000, stamp duty is waived. 
  • Victoria: If the value of the property is $600,000 or less, and you meet the criteria for the First Home Owner’s Grant, you may be exempted from paying stamp duty.
  • ACT: If you’re buying an off-the-plan unit, you don’t have to pay stamp duty if it’s worth $600,000 or less.
  • Western Australia: Stamp duty is exempted for homes valued at $430,000 or less and land valued at $300,000 or less. 

Stamp duty rates can change, and some concessional rates apply. It’s important to check with your State Revenue Office, or you can also use our stamp duty calculator to check how much it will cost you.

Will the property tax rate rise over time?

Since the stamp duty reform is based on the property’s land value, your payments may change depending on the land value. However, the property tax rates will be indexed each year to ensure that average payments increase in line with average incomes.

How long do I have to pay property tax?

When you choose the new property tax system, you will pay your property tax as long as you own the property. 

Can I purchase the property for investment?

You can use the home as an investment property if you meet the residence requirements. Keep in mind that you need to inform Revenue NSW of the changes. 

What other First Home Buyer Schemes are there?

If you don’t qualify for the property tax or want to take advantage of other first home buyer grants and schemes, you may consider the following:

First Home Owner’s Grant

The First Home Owner’s Grant (FHOG) is one-time cash assistance to eligible first-home buyers. The grant can range from $7,000 to $30,000 depending on the states and territories, and you may qualify for stamp duty exemptions or concessions based on the requirements. 

You can check with your state, territory or It’s Simple’s trusted brokers if you qualify for the grant and/or stamp duty exemption or concession. 

First Home Guarantee

The First Home Guarantee (previously known as the First Home Loan Deposit Scheme) is under the Home Guarantee Scheme. This allows eligible first-time buyers to purchase a property with as low as a 5% deposit without paying Lender’s Mortgage Insurance (LMI) or using a guarantor.

Family Home Guarantee

Another option from the Home Guarantee Scheme is the Family Home Guarantee. This scheme allows eligible single parents (first-time buyers or previous homeowners) to deposit as low as 2% without paying LMI or using a guarantor. 

Is it better to pay one-off stamp duty or an annual property tax?

Whether you choose to pay an annual property tax or stamp duty upfront depends on your financial situation and goals. If you plan to live in the property long term, it may be more beneficial to pay stamp duty if you can. 

On the other hand, if you want to enter the property market earlier but haven’t saved enough for stamp duty, or if you only intend to hold the property for a short term and upgrade soon, choosing the property tax may be a more cost-effective option.

To prepare and control your finance, get in touch with our mortgage brokers to get expert help from the start and beyond. It’s Simple will help you break down your options, enjoy tailored choices from the top 40+ banks and lenders in Australia and help you choose and apply for the right loan solutions that satisfy your goals and needs.

You can email us today at info@itssimple.com.au or book a free expert consultation at your preferred schedule. 

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