The State budget for NSW was delivered on 22 June 2021 ("NSW Budget"). The NSW Budget allows for stamp duty exemptions for electric vehicles and a new road user charge. The NSW Government has also released before the budget a progress report on its proposal for a future property tax to eventually replace stamp duty and land tax over a period of years.


  • A new road user charge will be levied on zero and low emissions vehicles from 1 July 2027 or earlier at a rate of 2.5 cents per kilometre (in 2021- 22 dollars).
  • Battery electric and hydrogen fuel cell vehicles costing less than $78,000 will be exempt from vehicle duty from 1 September 2021.
  • A proposed new property tax to eventually replace stamp duty and land tax remains under consideration and further consultation.

Road user charge

The NSW Government will introduce a road user charge ("RUC") on zero and low emissions vehicles, to commence from the earlier of 1 July 2027 or such time as battery electric vehicles comprise 30 per cent of new vehicle sales in NSW. The charge will be levied at a rate of 2.5 cents per kilometre (in 2021- 22 dollars) and indexed annually at Sydney Consumer Price Index.

Electric vehicles that receive a duty exemption will be subject to the RUC once it commences. The revenue from the RUC is not expected to be realised until 2027-28.

Duty on electric and hydrogen fuel cell vehicles

New and second-hand battery electric and hydrogen fuel cell vehicles costing less than $78,000 will be exempt from vehicle duty from 1 September 2021. The duty exemption will be extended to all zero and low emission vehicles, including battery electric vehicles, fuel cell electric and plug-in hybrid vehicles from the start date of the new proposed road user charge (see above).

The Government will also provide a rebate of $3,000 for the first 25,000 new battery and fuel cells EVs priced below $68,750. This rebate will commence from 1 September 2021. These policies will provide those purchasing an eligible vehicle with an immediate benefit of up to $5,540.

Property tax proposal

In 2020, the NSW Government released a Consultation Paper setting out its proposals for a new property tax, effectively to replace stamp duty and land tax over a period of time. Following consultations, NSW has issued a progress paper for June 2021 ("Progress Paper") setting out a summary of the conclusions it has made following consultation.


  • The basic proposal for replacing stamp duty and land tax put forward last year remains under consideration.
  • If the proposal proceeds, buyers will have a right to elect whether to pay duty or property tax but once an election is made for property tax, the land in question will remain subject to the property tax with no further rights of election.
  • Certain exemptions will be allowed, for example for where there are existing stamp duty and land tax exemptions and the property has not opted into the property tax. Exemptions will also apply for certain primary production land.
  • Foreign investors will remain liable for surcharge duty and land tax in addition to having to pay property tax.
  • Tenant protection measures may result in landlords in some cases absorbing the cost of the property tax.
  • A further period of feedback will run until 30 July 2021.

Outline of proposal

The proposal in summary contemplates the replacement after a period of time, perhaps 20 years or longer, of stamp duty and land tax with a single property tax. The new property tax is intended to apply at differential rates, depending on the kind of property that is taxed. The proposed table of rates is as follows:


Given that the property tax as proposed will attach to the unimproved value of land, the tax would, if unadjusted, simply follow increases in the value of land. However the difference between the rate of increase in property tax calculated in this way compared to increases in wages may widen over time, given that the recent trends are for land values to increase at a higher rate than wages.

The Government is considering a system of indexation that "would ensure average payments grow in line with average incomes". This would be similar to the current cap on council rates, producing adjustments to rate increases at a pace that ensures that total payments do not grow too fast. The proposal is to use as a benchmark increases in per capita nominal gross state product for increases in property tax.

Buyer choice

The Government indicates that buyer choice will be seen as "fundamental to managing a transition if the proposed property tax progresses". However, once a property is subject to the property tax, subsequent owners will be required to pay the property tax.

That is, there will be no future right of election as between stamp duty and property tax. The Government's expectation is that it would take about 20 years for the property tax to cover half of all residential properties, with further take up proceeding gradually in subsequent years. Price thresholds would be used to restrict the number of residential and commercial properties that would initially be eligible to opt into the property tax. Over time, these thresholds would be lifted, as fiscal space allows. The initial focus will be on the least valuable properties.


A key question raised in the consultation process was whether and the extent to which current exemptions from stamp duty and land tax would be available under the property tax regime. The Government's response is that it is "considering mapping existing exemption from stamp duty and land tax to the proposed property tax system". In this regard, the stated intention is as follows:

  • If a person is currently exempt from both stamp duty and land tax, that person would be exempt from property tax.
  • A person currently exempt from stamp duty but not land tax who is purchasing a property that is already subject to property tax, would be required to pay property tax. That is, the property tax takes priority. For example, if a transfer of land on change of trustee is currently exempt from stamp duty but the land is subject to property tax, it will simply remain subject to property tax on change of trustee.
  • A person who would pay stamp duty at the time of purchase but would be exempt from land tax, would be required to pay a concessional rate of property tax. For example, a charitable body that enjoys a land tax exemption but no duties exemption would pay property tax at a concessional rate. Given however that property tax accrues indefinitely, a charitable body holding land for a long period of time will pay more tax once the amount of property tax paid exceeds the duty otherwise payable.
  • Existing stamp duty and land tax exemptions would remain for any properties that are not opted into the property tax.

Farm land

Intergenerational transfers of primary production land would not be qualified for an opt-in. That is, existing stamp duty and land tax concessions would continue to apply.

As regards to other transfers of primary production land, the Government seeks further stakeholder engagement as to what the position ought to be.

The hardship scheme (see below) will remain available to farmers to acknowledge the exposure to extreme weather events, such as drought, floods or bushfires.

Foreign investors

There would be no change to the existing stamp duty and land tax surcharges for foreign investors. In other words, foreign investors would still need to pay surcharge stamp duty and surcharge land tax in addition to the proposed new property tax. Further, foreign purchasers would not be eligible to opt-in a residential property to property tax. However, when acquiring a property that is already paying property tax, the foreign investor would be required to pay the annual property tax in addition to any foreign investor surcharges.

That is, the proposal is to maintain the current differential treatment applying to foreign investors who pay surcharge duty and surcharge land tax.

Build to rent

Build to rent developers would initially be able to choose between property tax or stamp duty and land tax. However, if a build to rent project is undertaken on a property tax property, once development is complete, the fixed charge would be applied to each relevant dwelling.

Currently, certain land tax and surcharge purchaser duty concessions apply for build to rent developments, as part of Government policy to encourage the development of more rental properties. To the extent that these concessions will not apply to property tax land, it is not clear what policy intent the Government is signalling for build to rent concessions.

Property developments

Like other purchasers, property developers would initially have the choice to pay property tax or stamp duty provided the land is not already subject to the property tax. Properties that are being developed for residential use would be subject to commercial rates of the property tax. Residential rates would be available when a property is capable of being used as a dwelling. ​

This appears to mean that a developer may pay less overall tax if it elects for the property tax when acquiring land for residential development and the property tax during the development period is less than the duty otherwise payable. However, such developers will need to market developed lots on the basis that the property tax applies with no right of election for the buyer. A developer who pays stamp duty on the other hand, will be able to offer such a right of election.

On subdivision, each new property created as a result of the subdivision will remain in the same tax system as the property before subdivision.

Dual and Mixed use

For properties that have both commercial and residential uses, e.g. certain hotels, one or the other treatment will apply based on rules of classification as residential or commercial, with different rates applying in each case (see above). Where there is mixed use, for example a shop and a residence above it, apportionment will be required.

Tenant protection

Where a landlord tries to pass through the cost of any increased tax resulting from property tax being applied, the Government indicates that it would "respond as appropriate".

For commercial tenants, the proposal is that the landlord would not be permitted to pass through the property tax if it exceeds the amount of land tax as an outgoing. It appears however, that a pass through can be negotiated between the landlord and tenant allowing for alteration of outgoings. How this will work is not clear, in particular, whether the landlord would have a right to require such a renegotiation or not.

Where the end result is that the landlord's return is diminished as a result of increased tax costs because of the property tax, the Government's solution or position is not clear.


The Government indicates that no one should be required to sell their homes or small business premises because they could not afford to pay the proposed property tax. Deferral of tax payments will be allowed until the property is sold. The Chief Commissioner would have a discretion to defer up to 100% of the applicant's outstanding property tax liability. Similarly, relief will be allowed to primary producers where their land has been adversely affected by drought, floods or bushfires. A "modest rate of interest" would accrue on the deferred property tax. The total accrued amount would be payable out of the property proceeds the next time the property sold, up to a maximum of 75% of the market value of the property.

Instead of deferral, time to pay arrangements could also be negotiated.


If the Government proceeds with the reform, people who purchase between the date of the announcement and commencement of legislation would be able to obtain a refund of duty paid and opt-in the property tax.


The Progress Paper sets out additional detail to the proposed property tax following on from the original proposal in the Consultation Paper of 2020.

The distinction drawn between foreign purchasers and local purchasers is noteworthy and will become sharper as only foreign purchasers will be liable for duty and land tax with no right of election for residential property. Further, foreign purchasers will continue to pay stamp duty at the surcharge rate as well as land tax at the surcharge rate in addition to the property tax. The result is an ongoing scenario where foreign owners will pay higher amounts of tax than their domestic counterparts. This may have an impact on the levels of foreign investment coming into Australia, particularly into the property sector.

What is also not clear at this stage is the treatment of interests in land less than a fee simple, for example a mining tenement. Will the tax treatment of the mining tenement simple follow the treatment of the underlying land so that, for example, if the land itself is subject to the property tax will the mining tenement also fall within the same regime? If so, will the property tax simply apply to the owner of the fee simple or will it be shared between that owner and the owner of a lesser interest? Alternatively, will stamp duty simply continue to apply to the transfer of such interests regardless of the treatment of the underlying fee simple interest?

The treatment of commercial leases may also raise significant concerns for landlords. What the Progress Paper clearly contemplates is a scenario where additional tax costs as a result of the property tax applying could be borne by the landlord. For example, if the property in question is leased premises already within the property tax system and is purchased by a new owner with leases that do not permit the pass-through of the property tax, this is likely to affect the purchase price that the vendor can obtain so that effectively, the cost of the property tax is borne by the vendor in whole or part. Landlords entering into new leases ought to consider this scenario and to the extent possible, include a provision in the lease requiring renegotiation of the rent so as to be able to minimise the impact of the property tax on the landlord.


A final point to note is the impact of the proposal on Commonwealth/State relations. The Progress Paper expresses the view that the Commonwealth would gain more revenue than NSW as a result of the productivity benefits flowing through the general economy from the property tax. NSW has proposed that the Commonwealth establish a productivity fund which would reward States that engage in reforms that boost productivity. To the extent that State grants from the Commonwealth impacts tax revenue, the State indicates it is engaging through the Council on Federal Financial Relations on measures to ensure that the State is not penalised through the Commonwealth grant commission system of allocating GST revenue. The Progress Paper notes that without progress in this area "New South Wales stands to lose up to $1 billion of GST revenue per year in the long run, which would materially affect the Government's capacity to proceed with the reform".

What the Government appears to be signalling is that there are some obstacles in the way of implementing the property tax reform in question. Further, to the extent that NSW has an expectation that other States would follow suit, the current indications appear to be that a nationwide reform that follows NSW is some distance away. For instance, in the recent Victorian budget, rather than moving to any different system, it appears to entrench the existing system through an increase in duty rates.

Proposals such as that put forward by the NSW Government are not new. The concept of a universal land tax has had purchase among economists for some time, dating back to the nineteenth century[1]. Since that time, land taxes have had a chequered history in Australia. Land tax was first introduced in NSW in 1895 but later abolished. A federal land tax separately applied until 1952. Federal land tax was abolished in 1952 due to its unpopularity but was re-introduced later (and continues to apply) at the State level (alongside rates and taxes charged by local Governmental authorities)[2].

The Land Tax Amendment Act 1970 (NSW) introduced exemptions that apply to relevant land used for primary production and widened exemptions for most owner occupied single dwelling houses. In 1973, exemption was allowed for residential land not exceeding more than 1,200 square metres where it is used and occupied solely for residential purposes. The stated rationale behind this amendment was that:

"The tax is sectional in its application and has no regard for capacity to pay...and with rising [property] values it has been found that land owners are becoming liable for taxes in cases where this was never intended and, also, that the incidence of tax is becoming unduly burdensome in some cases"[3].

This rationale has since then remained the settled position underpinning relevant exemptions from land tax i.e. for a taxpayer's primary place of residence and land used for primary production.

Should the NSW Government succeed in introducing its proposed property tax this would overturn the historical rationale for the current system but it will not be taking the State into entirely unprecedented terrain. The ultimate success of the current proposal may, based on the historic experience, depend in the end on finding an answer to the challenges arising from questions of capacity to pay. That challenge in the past, has been the main obstacle standing in the way of levying and maintaining a generalised property tax. The Government however appears to be giving detailed consideration to possible solutions. A final proposal is required before a full analysis of the legal and economic workings of the property tax can be made.