Home buyers, and in particular first-time home buyers, must navigate many different terms, conditions, charges and fees as they land their perfect property. One of these charges is stamp duty, which is a form of taxation that buyers need to bear in mind as they weigh up the total cost of the transaction. But what exactly is stamp duty, and what do first-time home buyers need to know about this tax?

What Is Stamp Duty?

Stamp duty is basically a tax that is levied on legal documents. In most cases, these documents are used to finalise and record a transaction, typically involving the transfer of an asset. The documents in question must be verified or “stamped” in order to be legitimate, and this is where the term “stamp duty” arises.

For most of us, we are most likely to encounter stamp duty in relation to a property transaction. When you buy or sell a property asset, this must be documented, and stamp duty must be paid.

Stamp Duty in New South Wales

In Australia, stamp duty – also known as transfer duty, as well as by other names – is not required by the federal government. Instead, individual states and territories apply their own taxes to property transactions that occur within their jurisdiction. In New South Wales, taxes are revised each quarter to remain in line with economic changes in the state.

As of July 2022, properties worth between $32,000 and $87,000 accrued a duty of $442, plus an additional $1.75 for every $100 above $32,000.

Properties valued between $87,000 and $327,000 will be charged a duty of $1,405 plus $3.50 for every $100 above the $87,000 mark.

Properties valued between $327,000 and $1,089,000 will be charged a duty of $9,805 plus $4.50 for every $100 above the $327,000 mark.

Properties valued at $1,089,000 and above will be charged a duty of $44,095 plus $5.50 for every $100 above this level.

Impending Changes to Stamp Duty in New South Wales

While stamp duty is still applied to properties in New South Wales, it is in something of a transitional period. For first-time home buyers, there may be other options available – thanks to changes in the way the duty is implemented – as well as concessions and exemptions in some cases.

Annual Property Tax Option

For the 2022-23 budget, the New South Wales government has introduced an alternative to stamp duty for some home buyers. Anyone purchasing a home worth $1.5 million or less will be eligible to apply to pay an annual property tax as part of the transaction, rather than paying a stamp duty lump sum.

While this move does not exempt home buyers from paying tax on the transaction, it may make the purchase more manageable. Rather than having to pay a substantial amount of stamp duty up front, they will be able to make a more affordable annual payment. However, this will increase the ongoing cost of the transaction, as home buyers will still need to factor in these annual payments.

This alternative will be implemented in 2022. Eligible home buyers will be able to apply for this alternative form of taxation from January 16, 2023. It is estimated that around 55,000 people will be eligible for the annual property tax alternative, representing around 97% of first home buyers in the state.

Transfer Duty Exemptions and Concessions

Under the First Home Buyers Assistance Scheme and the First Home Owner (New Homes) Grant, some buyers may be exempt from paying stamp duty. Other home buyers may be able to apply for a partial concession.

Currently, anyone purchasing a new home may apply for a full stamp duty exemption on properties up to $650,000 in value. Concessions may be available on properties valued between $650,000 and $800,000.

Navigate the first home buying process with Sydney Brokers

Here at Sydney Brokers, we want to help you to navigate the sometimes confusing process of buying a first home. To achieve this, we provide a range of different mortgage options so you can find the ideal choice as you seek your perfect first home. Reach out to the team today to begin.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.