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In brief

The NSW State budget for 2020/21 was handed down on 17 November 2020 (“Budget“). The Budget contains measures that:

  • provide payroll tax relief and a program to encourage domestic and international businesses to relocate their head office, or expand their jobs footprint in NSW
  • allow land tax discounts
  • give transfer duty concessions for first home buyers and bush fire relief.

The Treasurer has also released a consultation paper setting out a significant proposal for tax reform, effectively replacing stamp duty over time with a property tax levied at higher rates than the current land tax.

In depth

Payroll Tax

The Budget increases the payroll tax threshold from AUD 1 million to AUD 1.2 million. This means that NSW payroll tax will not be payable unless group taxable Australian wages exceed AUD 1.2 million per annum. This represents a significant increase compared to the AUD 750,000 threshold for the year ended 30 June 2018 and therefore a significant payroll tax saving for businesses.

The Budget also reduces the payroll tax rate from 5.45% to 4.85% for two years.

Both of these measures will be backdated to apply from 1 July 2020.

The Budget also introduces the “Jobs Plus Program” to encourage domestic and international businesses to relocate their head office to NSW or expand their jobs footprint in NSW. It includes payroll tax relief, up to a four-year period, for every new job created where a business has created at least 30 new net jobs. This program will be available from 15 December 2020 until 30 June 2022.

Land tax

The Budget allows land tax relief of up to 25% for the 2021 land tax year for landlords of retail tenants. Land tax relief for landlords had been given to landlords who reduce the rents of tenants experiencing financial distress as a result of the pandemic. Landlords can receive that land tax relief (in the 2020 land tax year) of up to 50% of their land tax liability relating to the land leased. The 25% rate applies to the 2021 land tax year.

To qualify for the relief, landlords must reduce the rents of commercial tenants who have faced at least a 30% reduction in turnover, or residential tenants who have faced at least a 25% reduction in household income. In 2020, commercial tenants must have an annual turnover of not more than AUD 50 million, in order for the rental reductions to be eligible. In 2021, the relief will be limited to rental reductions provided to retail tenants with annual turnover of up to AUD 5 million.

A land tax concession of up to 50% on applicable land is allowed until 2040 for new build-to-rent developments that commenced construction on or after 1 July 2020. A build-to-rent property must meet several eligibility criteria, including that the property is managed under unified ownership and must not be sub-divided within the first 15 years. Eligible build-to-rent properties are also exempt from foreign investor surcharges. This measure was announced previously and legislated.

Transfer duty

The first home buyer concessions will be increased by reducing transfer duty for one year for new homes valued between AUD 650,000 and AUD 1 million. A first home buyer will pay no transfer duty when they purchase a new home valued up to AUD 800,000, and a concessional rate of duty when purchasing a new home valued between AUD 800,000 and AUD 1 million.
Transfer duty is also reduced for first home buyers of vacant land, with exemptions applying for land valued up to AUD 400,000, and concessions applying for land valued up to AUD 500,000. This is an increase on the previous level of support, which provided an exemption for land valued up to AUD 350,000, and concessions for land valued up to AUD 450,000.

The increased concessions are in place from 1 August 2020 to 31 July 2021.

These measures were announced previously and legislated.

People who lost their homes in the 2019-20 bushfires can access up to AUD 55,000 in transfer duty relief if they purchase a replacement property elsewhere in NSW rather than rebuild. Applications are open until 2 March 2022.

Tax reform

The NSW Government has also released a consultation paper on reform of State taxes. The proposals for a possible reform framework are in summary as follows:

  • The levying of a new annual property tax
  • Property tax would consist of a fixed amount plus a rate applied to the unimproved land value of an individual property
  • Buyers could choose to pay the property tax at the time of purchase instead of stamp duty and the current land tax
  • Once a property is subject to the property tax, subsequent owners must pay the property tax
  • Residential owner-occupied and primary production properties would pay lower rates than residential investment properties, which in turn would pay lower rates than commercial properties (see table below)
  • Price thresholds would limit the number of properties initially eligible for transition “to keep revenue and debt impacts within reasonable levels”, while ensuring over 80% of residential properties are eligible to opt-in from day one
  • The annual property tax would be based on unimproved land values.

The proposed differential rates are as follows.

Property Type Currently liable to stamp duty? Currently liable to land tax? Potential property tax rate
Owner-occupied residential property Yes No AUD 500 + 0.3% of unimproved land value
Investment residential property Yes Yes AUD 1,500 + 1.0% of unimproved land value
Primary production land (farmland) Yes No AUD 0 + 0.3% of unimproved land value
Commercial property Yes Yes AUD 0 + 2.6% of unimproved land value


The consultation paper invites submissions on the above proposal and poses a series of particular questions for tax payers with a view to ascertaining their views. Submissions are due by 15 March 2021.

The proposed model envisages that price thresholds could be used to restrict the number of properties that could opt in to the property tax. Only properties with a market value beneath the threshold would be eligible to opt in to the property tax. Over time, the threshold could be raised to extend the reform to more properties.

The long term prognosis is set out as follows:

“Over the long term, the reform would generate the same amount of revenue as stamp duty and land tax. This principle is key to balancing fiscal responsibility with the tax burden for individual property owners”.

How this can be achieved where a quantifiable amount of stamp duty is replaced with an annualised tax of indefinite duration is not clear, given that over time, the amount of property tax paid will exceed the amount of stamp duty payable upfront.
For a time at least, the proposed reform envisages a two tier tax system where some properties will be subject to stamp duty and potentially the current land tax and other properties subject to the new property tax.  Much more detail, however, is needed to evaluate the workings of the proposed new property tax. Other questions include the following:

  • What will be the maximum property value threshold that determines who can elect to pay property tax?
  • How long will the transition period be before the proposed property tax replaces stamp duty? The consultation paper indicates that even after twenty years, the option to pay stamp duty would remain for more than half of all properties.
  • Will any land tax exemptions currently available remain, for example those benefiting relevant charitable institutions?
  • Who will carry the liability for property tax? Will it be the owner of the fee simple or will holders of other interests such as long term leases be liable?
  • What will be the consequences of land transfers resulting from intra-group re-organisations and changes of trustees? Will these be circumstances allowing an election or must there be an arm’s length sale?
  • What options for election (if any) may be available for subsequent owners of the land?
  • In what ways will the new property tax differ fundamentally from the existing land tax (being an annual tax on the ownership of certain land)?

These matters may be addressed once a detailed proposal including draft legislation is available for review and comment.
We will be closely monitoring developments and engaging with our clients in making submissions to the NSW government in response to its consultation paper.

We note Victoria and Queensland will also hand down their budgets on 24 November 2020 and 1 December 2020 respectively. We are closely monitoring whether these jurisdictions may announce reform proposals and / or support programs similar to the above.


Amrit MacIntyre is a partner in the Sydney office of Baker McKenzie where he focuses on taxation planning and advisory work. He is one of Australia's most prominent tax lawyers and is a member of the Australian Taxation Office Public Rulings Panel and chairperson of Office of State Revenue/Taxation Institute of Australia Liaison Committee. Amrit is recognised as a leading practitioner in Asia Pacific Legal 500, Chambers Asia Pacific, International Tax Review's World Tax, International Tax Review's Indirect Tax Leaders Guide, International Tax Review's Tax Controversy Leaders Guide, PLC Which Lawyer?, Tax Directors Handbook, Who's Who Legal Corporate Tax and The Australian Financial Review's Best Lawyers in Australia.


Simone is a partner in the Sydney office of Baker McKenzie. She is ranked by Legal 500 as a Next Generation Partner and is listed as a Women Leader in Tax by the International Tax Review. Simone is also an author and contributor to Thomson Reuters and CCH tax commentary. She has been a guest speaker at University of Sydney and the University of New South Wales, and is a regular panelist and presenter at Global Taxation Executive Institute events, the Global Tax Disputes Forum and the Asia Pacific Tax conference.


Erica Kidston is a special counsel in the Tax team at Baker McKenzie. She works very closely with the Firm's Global Equity Services Practice to deliver comprehensive Australian taxation advice to multinational and Australian clients.


Peter McMahon is a senior consultant in the Sydney office of Baker & McKenzie where he focuses on stamp duty, GST structuring and advisory work. Peter has been in legal practice since 1976, and is widely recognized as one of Australia’s leading indirect tax lawyers. Peter was previously a partner and consultant with a multinational professional services firm from 2006 to 2015, and prior to that a partner with a leading international law firm from 1997 to 2006.


Janet advises local and international clients on the indirect tax (stamp duty and GST) aspects of transactions.