On Tuesday 21 June 2022, both the New South Wales (NSW) and Queensland (QLD) Governments released their much-anticipated 2022-23 State Budgets.
On the taxation front, the most notable feature in the NSW Budget was the movement from transfer duty to a broad based annual property tax. It was not, however, the grand scrapping of stamp duty as one might have anticipated based on earlier comments of the former NSW Treasurer. Instead, these measures are limited to first home buyers on a price-capped, opt-in basis.
Meanwhile, Queensland announced the introduction of a sizeable (up to 40%) royalty on coal miners, together with the introduction of a ‘Payroll Tax Mental Health Levy’.
We summarise below the available detail of the key tax measures announced in both the NSW and QLD Budgets.
NSW’s new property tax
Broadly, the new property tax regime will allow eligible first home buyers to opt into an annual tax levied against the unimproved value of their land and to correspondingly opt out of liability to transfer duty upon acquisition. The proposed legislation, and thus the precise detail of the new property tax regime, is not yet available. Even so, substantial detail has been announced by the NSW Government.
Detail on how the scheme will operate:
The key features of the new property tax regime are summarised below.
Opt-in basis: The regime will only apply where eligible buyers actively opt into the scheme.
Specifically, from the point of introduction of the legislation (anticipated to be during the second half of 2022) through to 15 January 2023 inclusive, eligible first home buyers who sign a contract to purchase residential property will be able to opt into the property tax regime. However, these purchasers will still be required to pay any applicable transfer duty within the usual timeframes and will then become entitled to apply for, and to receive, a refund of transfer duty from 16 January 2023.
From 16 January 2023 onwards, eligible first home buyers who sign a contract of purchase will be eligible to opt into property tax and will not be required to pay transfer duty in order to complete their transaction.
Notably, any contracts for purchase signed prior to the scheme commencement date will not be eligible to opt in.
Property tax levied annually: Once an owner opts into the property tax regime, they will be subject to an annual property tax assessment.
The annual property tax rates for the 2022-23 financial year will be as follows:
- For owner-occupied properties: $400 plus 0.3% of the unimproved property value; and
- For investor-owned properties: $1,500 plus 1.1% of the unimproved property value.
These rates are expected to be indexed against Gross State Product per capita, with a view to ensuring that average property tax payments grow in line with average incomes (as opposed to in line with land values). However, it is anticipated that the owner-occupier rate will remain constant for so long as the relevant first home buyer remains an owner-occupier.
The property tax year will be aligned with the financial year, in contrast to the calendar year for land tax. If a property is owned for less than a full financial year, a pro-rata adjustment will be made (based on the number of days in the financial year that the property is owned).
A deferral scheme will also be available (with the intention of avoiding owners facing financial hardship having to sell their properties to meet property tax liabilities).
Upon sale: Properties subject to the property tax regime are refreshed upon the sale of that property. In other words, a subsequent purchaser of an ‘opted in’ property will be liable to transfer duty upon acquisition unless the purchaser is themselves an eligible first home buyer who elects to opt into the property tax regime upon acquisition.
Additional eligibility requirements
In addition to the requirements set out above, to be eligible to opt into the new property tax both the purchaser(s) and property must also meet the following requirements:
- $1.5 million value cap: the property value must not exceed $1.5 million. Although unclear, the $1.5 million is presumably a reference to purchase price or market value (and not the unimproved value on which the tax will be levied);
- First home buyer exclusivity: neither the purchaser nor their spouse can have previously owned or co-owned residential property in Australia and cannot have previously received a First Home Buyer Grant or duty concession;
- Six-month occupancy requirement: the purchaser must move into the property within 12 months of purchase and must live in it continuously for at least six months; and
- Additional purchaser requirements: The person(s) purchasing the property must be an individual, be at least 18 years old and at least one person purchasing the property must be an Australian citizen or permanent resident.
Other business tax measures in NSW
In addition to the introduction of the property tax regime, the NSW Budget also contained some additional tax reform which may affect business.
- Increase to the foreign investor surcharge land tax rate: the annual foreign investor land tax surcharge will increase from 2% to 4% for the 2023 land tax year. This means that foreign investors may be liable to a land tax rate of up to 6% per annum.
- Reduction in early-payment land tax discount: from 1 January 2023, the discount available for taxpayers who pay their land tax liability in full within 30 days of their assessment being issued will be reduced from 1.5% to 0.5%.
- Increased land tax and transfer duty compliance: an additional $60 million investment is being made into Revenue NSW’s land tax and transfer duty compliance capabilities. Revenue NSW’s specific areas of target are not immediately apparent at present.
- Payroll tax exemptions under Future Economy Fund: a subprogram of the new Future Economy Fund will offer grant payments and payroll tax exemptions. Eligibility requirements have not yet been released.
- Increase to point of consumption and other betting taxes: from 1 July 2022, the point of consumption tax rate will increase to 15% and the effective betting tax rates, levied under the Betting Tax Act 2001 (NSW), will be adjusted to 15%.
Updated duty scale in NSW
The Chief Commissioner has published in accordance with section 33AF of the Duties Act 1997 (NSW), a change to the dutiable value brackets, with effect from 1 July 2022, as follows:
Marginal duty rate
Brackets from 1 July 2022
$0 to $14,000
$0 to $15,000
$14,000 to $31,000
$15,000 to $32,000
$31,000 to $83,000
$32,000 to $87,000
$83,000 to $313,000
$87,000 to $327,000
$313,000 to $1,043,000
$327,000 to $1,089,000
On the face of things, these bracket changes will have the effect that a slightly lower amount of duty will become payable (i.e. lower rates will apply to higher dutiable value bases), however, taxpayers may not see a benefit in real terms in a highly-inflationary environment.
Key business tax measures in Queensland
Under the new Budget, Queensland will introduce two measures which have the potential to increase the tax burden on large taxpayers.
Introduction of three new tiers of coal royalties
From 1 July 2022:
- a royalty at a rate of 20% will be imposed where the average price per tonne of coal is more than $175;
- a royalty at a rate of 30% will be imposed where the average price per tonne of coal is more than $225; and
- a royalty at a rate of 40% will be imposed where the average price per tonne of coal exceeds $300.
Introduction of a Payroll Tax Mental Health Levy
Seemingly mirroring steps taken by Victoria last year, the Queensland Government has announced the imposition of a ‘Payroll Tax Mental Health Levy’. From 1 January 2023, a 0.25% levy will apply to an employer’s taxable wages above $10 million and an additional 0.5% will apply to taxable wages above $100 million (i.e. the Payroll Tax Mental Health Levy will apply at a top rate of 0.75%).
Although details released to date are sparse, we would anticipate that this new levy will be charged on the same basis as existing Queensland payroll tax so that any wages currently subject to Queensland payroll tax will also be subject to the new levy, with equivalent provisions for interstate apportionment, exemptions and grouping.
The sources from which NSW and Queensland are seeking additional revenue tells an interesting tale; in NSW, the target is on foreign investors and gambling, whereas in Queensland it is the coal industry.
Meanwhile, given Premier Perrottet’s advocacy for transfer duty reform, observers will be forgiven for feeling that NSW’s transition to an annual property tax has been anticlimactic in its limited application to first home buyers and given that it leaves participating properties potentially subject to stamp duty on future sales.
At this stage, the death of transfer duty in NSW does not appear likely to occur any time soon. At least not for commercial and industrial use land and especially considering the recent broadening of the NSW duty net as we explored in a previous insight article, available here.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.