First Home Plus One Stamp Duty Scheme by Paul Anderson | May 2007 Area of Expertise | Business & Property
A month before the NSW State Election 2007, the NSW Treasurer, Mr Michael Costa, in a media release announced that from 1 May 2007, the NSW Government would introduce the First Home Plus One Scheme which is intended to complement the First Home Plus Scheme currently available to first home buyers. The relevant legislation has now been passed.
Shared Equity Arrangements Under First Home Plus, first home buyers are entitled to certain stamp duty and mortgage duty concessions, provided that certain eligibility and residency requirements are met. However, the concessions do not extend to first home buyers entering into shared equity arrangements with a financial institution or immediate family member to purchase property where the “equity partner” would obtain a share or interest in the property. This is because Sections 71 and 73 of the Duties Act 1997 require a purchaser to be a natural person (not a company or trust) and a purchaser must not have owned property at any time in Australia and/or previously applied under the Scheme.
First Home Plus One Scheme Under the new First Home Plus One Scheme, first home buyers entering into shared equity arrangements with a financial institution or immediate family member will still be eligible for a proportion of the stamp duty exemption. The equity partner can provide up to 50% of the purchase price with the stamp concession pro-rated only on the first home buyer’s share or interest in the property. The interest of the equity partner is disregarded entirely if it is less than 5% A spouse is not considered to be an equity partner. A purchaser is ineligible if a spouse has previously owned residential property or received a benefit under First Home Plus. A first home buyer will be entitled to the full mortgage exemption on money borrowed by the first home buyer even though the mortgage needs to be signed by the equity partner. First Home Plus One also applies to purchases of vacant land up to $450,000 provided that the first home buyer intends to build a first home on the land and the other eligibility criteria are met.
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Example Sarah is single and not in a de facto relationship, a first home buyer and has never owned property in NSW (either solely or jointly) or made a claim under the First Home Plus Scheme. She wishes to purchase a property for $500,000 and claim the First Home Plus duty exemption. Sarah has a 10% deposit and is borrowing 90% of the purchase price. Currently, under the First Home Plus Scheme, Sarah would receive a stamp duty saving of $19,731 (no stamp duty on transfer of land for $500,000 or less, i.e $17,990, and no mortgage duty payable of $1,741). However, if Sarah could only borrow 50% of the purchase price and needed her father, Greg (who already owns property), to assist her as an equity partner with the other half of the purchase price, she would not be eligible under the First Home Plus Scheme as Greg has owned property. With the proposed First Home Plus One Scheme, Sarah can purchase the property with her equity partner, Greg, and still be eligible to receive a stamp duty saving of 50% of $17,990, i.e. $8,995, in proportion to her share of the property. In addition, she is entitled to the full amount of the stamp duty of $1,741 otherwise payable on the mortgage. The total saving is $10,736.
First Home Owners Grant There is no change to the First Home Owners Grant Scheme operated by the Federal Government which entitles first home buyers to a grant of $7,000.
Land Tax If all the owners (including the equity partners) are natural persons and either: •
one of the eligible first home buyers occupies the property as his or her principal place of residence as at 31 December; or
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the property is vacant land on which the first home buyers will build and occupy their home within 2 years;
then the land is exempt from land tax.
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Conclusion Shared equity arrangements are not common. Parents generally tend to assist their children by loans or gifts rather than equity sharing, which tends to create other problems for the equity partner; eg capital gains tax. There is also a need to document the exact nature of the equity partner’s interest in the property. Is it intended that the equity partner will have a genuine interest in the property or is he just “lending his name” to the transaction to assist his child and placate the Bank with the intention that the property will in reality be owned entirely by the child? If the former situation applies, arrangements for the sharing of rates, insurance, mortgage repayments and maintenance need to be agreed and documented. However, although shared equity arrangements are used infrequently, the new measures can only assist first home buyers and are therefore to be welcomed.
For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au
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