NSW Pushes to Convince Residents to Opt out of Stamp Duty for Land Tax

A real estate sign is seen at a property in Sydney, Australia, on Sept. 6, 2022. (Lisa Maree Williams/Getty Images)

The New South Wales (NSW) government has launched an online calculator to allow first home buyers in the Australian state to see how much money they would save by switching to an ongoing land tax instead of the current stamp duty.

This comes as the NSW government is set to introduce legislation to trial the First Home Buyer Choice scheme in January 2023.

The scheme is part of a multi-billion-dollar package to improve housing affordability in the state.

Under the scheme, instead of paying a stamp duty upfront—in the realm of tens of thousands of dollars—when purchasing their first home, NSW residents will be able to pay an annual fee of $400 (US$255) plus 0.3 percent of the land value if the property is their primary residence.

The tax rate will increase to $1,500 plus 1.1 percent of the land value if the property is used for investment purposes.

For the scheme to be applicable, the value of the property purchased must not exceed $1.5 million.

The NSW government said around 84 percent of homes sold in the state fell under this cap.

The online calculator is now available on the ServiceNSW website. Prospective buyers can use it to compare what they would pay for stamp duty and land tax.

How Do First Home Buyers Benefit from the Scheme?

NSW Treasurer Matt Kean said the calculator would help first home buyers make decisions based on their circumstances and that most of them would end up paying less by switching to the land tax.

“Treasury analysis indicates half of all owner-occupiers sell their home within 10.5 years, with first homebuyers likely to sell even sooner,” he said.

A 'sold' real estate sign is seen outside a high-rise apartment block in Sydney, Australia, on May 8, 2021. (Lisa Maree Williams/Getty Images)

A quick calculation showed that a $1.35 million house with a land value of $810,000 would attract $2,830 in land tax in the first year, compared to $58,450 for stamp duty.

As land values usually rise over time, first home buyers will likely be forced to pay higher land taxes in later years.

NSW Premier Dominic Perrottet’s argument is buyers can save for a deposit and obtain their first home sooner with the ongoing land tax system.

“Home ownership is the investment that starts paying dividends from the moment you walk through your front door for the first time, and we don’t want people to have to wait an extra couple of years to reap those benefits,” he said.

The state government will put aside $728.6 million for the trial over a four-year period. It said the scheme would cost the budget in the short term but provide a more predictable revenue stream compared to stamp duty, which relies heavily on property transactions rather than ongoing ownership.

Meanwhile, the opposition has yet to release its housing policy for the upcoming election in March 2023. However, it did not approve of the land tax trial and called it a “forever tax” on the family home.