Following on from our comments when it was first announced in July 2020 and after the second iteration was published in June 2021, another year has passed and the third iteration has formed part of the NSW Budget 2022-23.


The third iteration has moved from the ‘thought piece’ or consultation phase to projected implementation with a start date of 16 January 2023, albeit much-pared back than what was previously proposed, at least to begin with.

We set out our preliminary comments below, paying particular attention to the differences between previous iterations.  Further analysis will be required once enabling legislation has been tabled.

What is the Property Tax?

At a high level, the Property Tax is intended to replace stamp duty as the method of taxing land in NSW. Stamp duty is a large tax paid upfront once on the purchase of land in NSW, while the proposed Property Tax is a much smaller annual tax, similar to council rates. 

For eligible properties, stamp duty rates are as high as 5.5%, compared to the proposed rate of $400 plus 0.3% for Property Tax.  That rate will apply as long as the property remains the purchaser’s home, which is consistent with the previous iteration.  If the land is turned into an investment (there is no guidance on whether it is left vacant), a higher rate of Property Tax is payable, being $1,500 plus 1.1% (again consistent with the previous iteration).  In most cases, is amount of Property Tax on investments is expected to be a higher annual charge than what is imposed under the current land tax regime, which currently doesn’t apply to land held by an individual with a value of less than $822,000).

While stamp duty is payable on the market value of the land and improvements at the time of purchase, the Property Tax is payable by reference to the land value (without improvements) each year, which will change over time. While there seems to be an adjustment mechanism with a view to dampening the effect of increasing property prices over time, there is inherent uncertainty in value (and rates) over time, and the Property Tax is payable for as long as the land is owned. For example, the Budget itself is currently forecasting forward increases of land tax revenue on the strength of increasing (or increased) property values.

Eligibility confined to first home buyers

While the land value threshold is about what we expected at $1.5m, unlike the previous iteration, the Property Tax is only open to first home buyers. This is consistent with housing affordability being one of the stated policy objectives of the NSW Government. 

Choice between stamp duty and Property Tax – who will (or should) choose to opt in?

Eligible purchasers will have a choice to pay an upfront stamp duty or opt into the annual Property Tax. Currently, the First Home Buyer Assistance Scheme applies (and appears will continue to apply) to first home buyers to provide for an exemption from stamp duty on the purchase of properties with a market value of less than $650,000 and to impose a concessional rate for properties with a market value between $650,000 and $800,000. Therefore, if a purchaser is eligible for the First Home Buyer Assistance Scheme which is exempt from stamp duty, opting into the Property Tax would not be worthwhile. Whether it would be worthwhile where a concessional rate of stamp duty applies would need to be determined on a case by case basis.

Therefore, the choice may be practically confined to properties with a market value between $800,000 and $1.5m. Given that the property would not be “stuck” in the Property Tax system (that is, any purchaser upon sale would also need to be an eligible first home buyer in order to opt in to the Property Tax), unless there is a desire to later turn the house into an investment, there would seem to be little downside to opting in, even if the amount of Property Tax paid over time exceeds the original stamp duty amount.


As with previous iterations, it is proposed that anyone facing ‘hardship’ would have an opportunity to defer their Property Tax. It will be important to understand the parameters of ‘hardship’. If the current hardship parameters are anything to go by, it is expected that it would be quite a high threshold. It will also be important to understand what security (if any) the State will take over the land (eg in the form of a charge) and how that effects financial covenants under any existing lending arrangements and inheritance.

Transitional Arrangements

It is proposed that a purchaser who signs a contract between the commencement of enabling legislation and the introduction of the Property Tax, can opt in once the Property Tax commences and receive a refund of any stamp duty paid on the purchase. 

What’s next?

By limiting the introduction of the Property Tax to first home buyers, and not forcing property to stay in the Property Tax system, many of the unresolved issues faced with previous iterations are not currently relevant, including:

  • Potentially creating a two-tier property market (ie some property in the stamp duty regime and some property stuck in the Property Tax regime)
  • Unintentionally making housing affordability worse if vendors enjoy increased sale prices on account of buyers willing to pay more (because they no longer have a stamp duty bill)
  • Distortion of exemptions between stamp duty and land tax, and application to Property Tax
  • Any special treatment for build-to-rent properties
  • Application of the Property Tax through development and subdivision
  • If (and how) the Property Tax can be passed onto tenants
  • Inheritance considerations
  • Retirement considerations
  • Complexities arising due the interaction with landholder duty (being a tax payable by reference to land on the transfer of shares in a company or units in a unit trust)
  • Application of foreign surcharges.

It is worth noting that the recent increase in interest rates is forecast to reduce the stamp duty intake by $1.3b, with the total projected stamp duty for 2022-23 falling $4b from the record achieved in 2021-22.  A key driver of the Government’s desire to introduce a Property Tax is to smooth the revenue take over the long run, and for it to not be so dependent on the volatility of property markets. If this is the start of progress to a broader application of Property Tax, which has been the desire expressed by the current NSW Premier for nearly 2 years, these issues will return and will require resolution.

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