NSW Backtracks on Removal of Stamp Duty in a Reversal of Policy

The New South Wales (NSW) government has decided to retract the option for first home buyers to pay yearly land tax instead of stamp duty, less than six months after its implementation.

Premier Chris Minns has announced these changes as part of an initiative to establish a more equitable and simplified stamp duty concession scheme. The alterations involve expanding the scope of properties eligible for tax breaks and concessions.

The First Home Buyer Choice Scheme, which was initiated by the previous Liberal government on January 16, 2023, after being promised by former state premier Dominic Perrottet in June 2022, will now be terminated. This scheme, regarded as a ‘game-changing’ policy at the time, allowed eligible first home buyers to forgo stamp duty in favour of a smaller annual fee on properties valued up to $1.5 million.

Under the previous scheme, first home buyers who opted for the tax were required to pay an annual property rate of $400 plus 0.3% of the property’s land value.

Despite Perrottet’s commitment to expanding the scheme after re-election, which did not come to fruition, the decision to include the option to remove stamp duty for first home buyers was criticised as “soft.”

The government has announced that access to the former First Home Buyer Choice scheme will be closed off from July 1, 2023. However, first home buyers who previously chose to pay annual property tax instead of a lump sum stamp duty payment will be protected under grandfathering provisions.

The legislation will raise the stamp duty exemption threshold for first home buyers from $650,000 to $800,000. Stamp duty concessions will now apply to properties valued between $800,000 and $1 million.

Premier Minns claims that the new concession scheme will ensure that 84% of first home buyers, or five out of every six, will either pay no tax or a reduced rate starting from July 1, 2023. It is reported that a first home buyer purchasing an $800,000 property will save up to $31,090 with these changes.

The government also aims to enhance the integrity and targeting of first home buyer assistance programs. This includes preventing first home buyers who purchase properties at the top end of the range under the former scheme from receiving an unequal share of the benefits.

The requirement for first home buyers benefiting from low or no tax payments to live in the purchased property will be extended from six months to 12 months.

NSW Treasurer Daniel Mookhey asserts that this fulfills a key election promise to abolish the property tax, which he refers to as a perpetual burden on homeowners. He believes that the new thresholds for stamp duty exemptions and concessions offer a simpler and fairer way to assist more first home buyers compared to the property tax, which only benefited a smaller group.

However, one industry organisation has criticised the changes, describing the return to stamp duty as a regressive step. Elinor Kasapidis, the senior tax policy manager at CPA Australia, acknowledged the increase in stamp duty thresholds but argued that it falls short in the long run. The organisation advocates for the replacement of stamp duty with a smaller annual fee for all home buyers, emphasizing that stamp duty is an inefficient and obstructive tax that hinders homeownership.

Kasapidis highlighted the demand for the alternative property tax option in NSW and called for more Australians to have the choice. CPA Australia advocates for a widespread national transition away from stamp duty and has been urging federal, state, and territory governments to discuss comprehensive reforms regarding stamp duty, GST, and payroll tax.

The recent announcement is expected to reignite the debate surrounding stamp duty in NSW and across the country.