The amending legislation for the changes to the First Home Buyers stamp duty exemptions (and the complimentary budget measures) have passed the Lower House yesterday, 22 June 2017. We are still waiting to see if it passes the upper house without amendment, and so it is still difficult to give firm advise, but for now here is a summary of the proposed legislation as it now stands.
The new laws remove any reference to 'new home' from the relevant titles in the Duties Act and the stamp duty exemption sections of the legislation. That is, the previous exemptions available to home owners purchasing a new home have been expanded so that they are available to a first home owner purchasing any residential property, or vacant land on which they will build residential property.
Rates of Duty
The new scheme would apply to the purchase of a first home (as opposed to the current exemption which applies to a new home that is a first home). The scheme only applies to properties valued up to $800,000 (which is an increase from $650,000) if the property has a private dwelling built on it, or up to $450,000 (which has not changed) if it is vacant land.
If the property has a private dwelling on it and is worth not more than $650,000 then no duty will be payable, and reduced duty will apply between $650,000 and $800,000. If the property is a vacant block of land then there is no duty up to $350,000, and reduced duty between $350,000 and $450,000.
If you would like to see what your stamp duty will be, click on the link to the right to see the budget estimates.
Who is eligible? Who is a first home buyer?
To the left you will see links to the proposed amending legislation, and the current legislation (so that you can see if you can make sense of the proposed amendments).
The definition of first home owner is not being amended. To qualify as a first home owner you must:
- be a person (that is, not a company or trust)
- not own or have previously owned residential property in Australia in your sole name, or with anybody else
- your spouse (including any de facto spouse) must not own or have previously owned any residential property in Australia
You may also be partially eligible for an exemption as a shared equity concession (as opposed to a shared equity exemption) if you are purchasing the property with another party or parties, but the parties who qualify as first home buyers must :
- acquire at least 50% of the property
- otherwise qualifies as a first home owner
This will only entitle you to a reduction in the stamp duty in accordance with your share of ownership of the property.
What is an eligible property?
The new arrangements do not apply to business premises or non-residential premises. You cannot purchase part of a house, you must purchase the entire house or entire strata unit or town house.
The property purchased must be used as your principal place of residence. This is unchanged. The home must be occupied by the first home owner or one of the first home owners who are acquiring the property as their principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months after the settlement date.
The property can be an 'off the plan' purchase if the property is used and occupied by the purchaser as their principal place of residence in accordance with the usual principal place of residence requirements (that is you have to move in within 12 months as stated above).
If the purchaser is what is referred to as an exempt permanent resident, they must occupy the property for a continuous period of at least 200 days within the first 12 months of the liability date. If you are an 'exempt permanent resident' or think you might be you should get specific legal advise on this point, because it is a more complex provision than the provision relating to Australian citizens.
What is an eligible contract?
The exchange date (not the settlement date) must be on or after 1 July 2017. You cannot rescind an existing contract and then resign on 1 July 2017, this will be tax fraud and you expose yourself to the risk of large fines.
Other supporting measures
There are some other supporting measures introduced under the 2017 Budget on the basis that they will help first home owners. These measures include:
- Increasing the stamp duty on purchases by foreign investors from 4% to 8%
- Increasing the land tax surcharge payable by foreign persons from 0.75% to 2%
- Making investors pay stamp duty on off the plan purchases up front (that is, removing the 12 month deferral)
- Removing the stamp duty payable on lenders mortgage insurance
Shared equity partners
The Government has set up a new scheme, known as shared equity partners, where the NSW Land and Housing Corporation, or a registered community housing provider can purchase a property with a first home owner and the first home owner will get the full benefit of the stamp duty exemption. It is not clear yet how the application process for this will work, but the legislation does set out the requirements as follows.
You may also be partially eligible for the scheme if you are purchasing the property with another party or parties, but the parties who qualify as first home buyers must enter into an agreement with the 'equity partner' whereby they:
- acquire at least 20% of the property
- have an exclusive right of occupancy in the property with no time limit (that is the equity partner cannot occupy the premises)
- have a right to purchase from the equity partner an increased share in the ownership of the property
What should I do?
Make an appointment to see Bruce Coode and speak with him about your purchase before you sign anything. He will help you to understand your entitlements and exemptions and properly budget for this significant investment.
The first half hour appointment will be free, and you can ask your questions and make informed decisions while you are out searching for your first home. Bruce has been acting for people purchasing property for forty years and you will benefit from his experience.
If you would like more information about property generally, or our firm specifically, then you can read more of our articles on this topic by clicking on the link to the right.