Changes to NSW Property Tax

The Status Quo

Stamp duty is a one-off, upfront tax on the purchase of property payable by the buyer. The rate varies depending on the value of the property but is on average about 5.5% of the purchase price of the property. Foreign investors are also subject to an additional surcharge of 8%.

Land tax is an annual tax on the ownership of property payable by the owner. The rate varies depending on the value of the property but is typically 1.6%–2% of the value of the property. Foreign investors are also subject to an additional surcharge of 2% on residential properties.

Proposed Changes

Buyers will be able to choose to pay an annual property tax instead of stamp duty and land tax. The property tax rate will be significantly lower than the stamp duty and land tax rates. The proposal is to have different rates for different property types:

• residential owner-occupied
  – AUD 500 + 0.3%;
• residential investment
  – AUD 1,500 + 1%;
• farmland – 0.3%;
• commercial – 2.6%.

The rate will also be applied to the “unimproved land value”, which is lower than the market value of the property. Once a property has been opted into the property tax regime, all future buyers of the property will be subject to the same regime. Over time, it is anticipated that more and more properties will become subject to the property tax regime.

What this means for foreign investors?

As foreign investors are not exempt from stamp duty nor land tax, the new property tax regime will significantly reduce the cost of buying property in Australia. It is yet to be confirmed whether the new regime will be available to foreign investors, or whether a surcharge rate will apply.

What’s Next?

We wait! The Government is still consulting, so any changes are likely to be some time away.

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Photo: Greg Brave - stock.adobe.com