What is stamp duty?
Stamp duty, also known as ‘transfer duty’, is the tax you have to pay to the state and territory governments when making certain transactions. These transactions include lease or mortgage application, as well as the transference of properties; not only real estate, but also shares or businesses.
It is hard to know what can and cannot be claimed on tax in the property market. When you buy a property, there are plenty of aspects that can be claimed on tax return; namely, many of the fees that come with applying for and obtaining a new property.
It is common for property buyers to wonder whether or not this fee is tax deductible, or if there are any exemptions. We will answer these questions, as well as provide further information on what is tax deductible in your property, so you can get the tax returns you want.
Who pays stamp duty?
Generally, you must pay stamp duty when you have bought:
- A home, including those that are only used as holiday residences
- Vacant land
- Investment properties
- A business when it is included with land
- Commercial or industrial properties
Stamp duty is payable not only to bought properties, but also land that you have an interest in, or has been given. These instances of land tax include:
- A gift
- A declaration of trust
- A transaction effecting a change in the beneficial ownership of a property
There are several transactions beyond property sold or bought that require you to pay stamp duty. These often include transactions in business or shares, and can be checked with your state government.
However, there are some notable exemptions to who must pay stamp duty. These exemptions are usually different between the states and territories, and often depend on the specific situation of the one buying the residential or investment property.
When is stamp duty paid?
After buying a property, the stamp duty forms and payment must be submitted to the state revenue office within 30 days. You do not have to make this transaction yourself, as your conveyancer or solicitor can submit it for you.
Is stamp duty tax deductible?
Unfortunately, for almost all of those looking to become a home owner or a property investor, stamp duty is not tax deductible as it is a capital cost; a once off payment of land or buildings. You will most likely have to pay the full amount of stamp duty that your state or territory governments charge.
However, recently some states have allowed for first home buyers to not pay stamp duty on their new home. The only condition is the cost of the houses, and that, in NSW, the owners have the option to pay an annual tax rather than upfront stamp duty.
It is always best to check if you qualify for an exemption in your state or territory, which can be done through the Australian government.
Can owner occupiers claim stamp duty as a tax deduction?
Those who have bought a residential property with the intent to live in it usually cannot claim stamp duty as tax deductible. However, if you are a first home buyer, you may be granted an exemption or concession depending on your state or territory.
Otherwise, there are plenty of grants available to help offset the costs that stamp duty charges you.
Can investors claim a tax deduction for stamp duty?
For the most part, an investment property is not tax deductible for stamp duty. This is due to the Australian Taxation Office (ATO) counting it as an ‘acquisition cost’, which forms part of the cost base.
Luckily, however, if you are a property investor, you may be able to offset the cost of stamp duty against your capital gains tax liability when you sell the property.
Stamp duty exemptions
We have touched on the fact that there are some exemptions on stamp duty, as rare and conditional as they might be. The two most common ones across Australia are exemptions for first home buyers, and when a property transfer occurs between family.
First home buyers
While most states offer stamp duty concessions for pensioners, only a select few offer complete exemptions for first home buyers. For a full understanding of the conditions around these exemptions, it is best to go through each state and territory governments’ ruling.
- New South Wales: The First Home Buyer Choice scheme grants buyers of properties under $1.5 million to pay an annual property tax rather than a transfer duty. On top of this, NSW also offers transfer duty concessions through the First Home Owner Grant (FHOG), and the First Home Buyers Assistance Scheme.
- Victoria: The only other state aside from NSW to offer full exemption to transfer duty, Victoria will not make first home owners pay on properties that cost less than $600,000. There is also a reduced amount to be paid on properties priced between $600,001 and $750,000.
- Australian Capital Territory: While not fully exempt from stamp duty, first home owners may be eligible for concessional rates. This comes with certain prerequisites to be met first, including: property value, property type and occupancy requirements.
- Northern Territory: Does not exempt first home buyers from stamp duty, but it does grant them $7,000 off stamp duty. This is only applicable to those not eligible for FHOG.
- Queensland: Properties valued below $550,000 have a certain amount of concessions available.
For those living in Western Australia, South Australia and Tasmania, there are no exemptions or concessions available.
Transfer between family members
There are plenty of exemptions or concessions allowed in transfers between family members, but they still can only occur under certain circumstances.
Married couples and de facto partners: If the primary place of residence, or vacant land where the family home is to be built, is transferred between a couple, no transfer duty needs to be paid. The only condition is that both parties hold the property equal after transference. Furthermore, de facto partners must have lived together for 2 years before applying.
Married couples, domestic relationship, or de facto partners break up: Alternatively, if your relationship has ended and there is a property involved, you will not have to pay transfer duty if it is transferred to certain people in the family. This includes:
- between partners
- to a child or children of either partner, or
- to a trustee of the child or children of either partner.
If the family home is used for other purposes: When a family home is used for other purposes, exemptions only apply to those areas used as residential. The exemption also stands on rooms if business is only occasionally done there; for example, if most of your work is done elsewhere, the study you occasionally use for business is still exempt. However, if you are using more than one room in your home for business, the exemption wouldn’t apply. Despite this, the stamp duty may be reduced on transfer.
How much is stamp duty?
Depending on where you live in Australia, the cost of stamp duty differs greatly. The cost can also be altered by:
- What type of property you are buying; whether it is an investment property or a rental property matters
- If you are a first home buyer
- Whether you are a foreign buyer
- Whether you are buying vacant land, a new home, or an existing one
Calculate stamp duty
It can be incredibly difficult to figure out how much stamp duty you need to pay, but fortunately, stamp duty calculators exist to make things easier for you.
These calculators will break down all of the factors included under stamp duty, as well as the income in the household, how many dependents there are, and any additional fees you will accrue.
If you are uncertain as to whether you will be able to afford the tax that comes with a new home or land, it is best to do a trial calculation to know your spending limits.
Other home loan tax deductions you can claim
Even if you are not eligible for stamp duty being tax deductible, that does not mean that there are no other home loan tax deductions you can claim.
Tax deductions for property investors
While stamp duty is not immediately tax deductible, property investors can claim tax return on a wide variety of costs. These include:
- Rental advertising costs: You can claim the expenses that come with advertising the property against your income.
- Loan interest: You can claim the interest charged on a loan, as well as bank fees for servicing it, for an investment property.
- Council rates: If council rates are reduced during the year, you can claim tax return during the times the property was rented.
- Land tax: If the property is rented, you can use land tax as a deduction. The amount differs from state to state.
- Strata fees: Body corporate fees can be claimed if the property is on a strata title, but not if the fee includes garden or maintenance costs.
- Accountant and/or agent fees: Many landlords require accountants to help with bookkeeping, or commission an agent to help collect rent or find tenants. These costs can become tax deductible.
- Utility costs: Stationery, phone contracts, internet and electricity usage in your investment property can be claimed.
- Legal expenses: Any legal advice or documents pertaining to rental properties can be tax deducted.
- Negative gearing: If the income coming from a property is less than its expenses, the loss can be deducted from a landlord’s taxable income, so that they pay less tax.
Further information on these investment property tax deductions, including how to claim, can be found on the Homestar Finance website.
Deductions for improvements to your investment property
An investment property often requires upkeep and improvements for it to retain value in the property market. These rental property expenses can often be claimed back on tax under specific circumstances:
- Building and/or appliance depreciation: The depreciation of the building, renovations, and any appliances bought can be claimed. These claims come with several stipulations, including when the building or appliances were bought, or whether they were bought new or second-hand.
- Repairs and maintenance: The costs of fixing wear and tear can be claimed as tax deductible. This can also include pest control needs and even some aspects of garden upkeep.
Home loan interest tax deductions
If the property you have bought with a loan is generating taxable income, you can claim on the interest charged to your home loan. Residential homes are generally exempt from this tax deduction, with property investment being much more likely to be able to claim.
Unfortunately, loan repayments are not included in the tax deduction.
If you are searching for a home loan fit for you, we at Homestar Finance can guide you through the choosing process. Our investment property loans are some of the best on the market, and if you are ready to get started, the process will be made easy with your very own home loan specialist.
Stamp duty and capital gains tax liability
Stamp duty is not the only tax that home buyers will have to face when acquiring property. The capital gains tax (CGT) also comes into effect when a property is sold, and is calculated by the difference between the selling price and the purchase price of the property; essentially a tax on the profit of sold property. This purchase price often includes the legal fees and upfront costs that come with house acquisition.
In many cases, stamp duty is also included in the purchase price. With stamp duty included in the cost base, that means your capital gains tax liability is decreased when you sell the property; saving you a substantial amount of money.
Calculating capital gains tax
To calculate your CGT with all added costs included, this is the easiest formula to follow:
(The selling price of your home – accrued transaction costs) – (the original purchase price of your home + associated transaction costs)
This equals your capital gains (or sometimes loss). It should be noted that the amount paid in stamp duty positively affects the CGT formula for the investor. It does so by increasing the cost base value as a capital cost.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
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