Land transfer duty is a tax that most people have to pay when they buy a property in Australia. Real estate experts normally refer to this tax as stamp duty, and it's important to understand that this payment can add a significant premium to the final cost of a property purchase. If you're looking to buy a new home, find out how stamp duty can affect the transaction, and learn more about your liability for this tax.
How stamp duty works
Stamp duty is technically a tax on written documents and certain financial transactions in Australia. The federal government does not collect stamp duty revenues, and each state or territory controls the rate at which you must pay this tax. Taxable transactions include motor vehicle registrations, insurance policies, hire purchase agreements and, of course, transfers of real estate.
You must normally pay stamp duty within 30 days of a liable transaction. For real estate buyers, this means you must pay the tax within 30 days of the date when you legally settle the transaction. If you don't pay within this time, late payment fees and interest charges will apply. For example, in Victoria, you will pay interest at an agreed rate on the outstanding sum until you pay it.
Stamp duty rates
Stamp duty rates vary between states and transaction types. Generally speaking, the percentage or rate of stamp duty increases according to the value of the transaction. For low-value transactions, you probably won't really notice the cost, but for a property that costs $500,000 or more, you could face a bill of several thousand dollars.
Some states have multiple tiers of stamp duty rates. For example, if you buy a home in the ACT, there are seven property values to consider, each with an increasing rate of stamp duty. However, in the Northern Territory, there are only two stamp duty rates, based on property values over $525,000 and under $3 million or over $3 million. That aside, even in the Northern Territory, there is a relatively complex formula via which you have to calculate the property value.
When you buy a property, a real estate agent can explain to you the stamp duty rate you should expect to pay. Of course, this can influence your negotiations. For example, if the property price sits near a stamp duty band, you may decide to limit how much you will pay according to the tax liability this transaction would attract.
Some buyers are exempt from stamp duty. These exemptions aim to make sure that people who may find it harder to get on the property ladder don't have the added liability of a hefty stamp duty charge.
First home schemes exist in most Australian states. For example, in New South Wales, first-time buyers don't have to pay stamp duty on property purchases worth up to $550,000, and reduced rates are available on properties valued between $550,000 and $650,000. In all cases, you'll need to meet strict eligibility requirements. For example, you'll normally need to live in the property for at least 6 months after you buy it.
Other exemptions can include pensioners, family farms, young farmers and off-the-plan sales. If you fall into these categories, you should find out if you can apply for an exemption in your state, as this could save you a significant sum.
Higher stamp duty rates
Some states now impose extra stamp duty charges for foreign investors. Foreign investors have to pay higher rates because they haven't contributed to the local economy in the period before they buy a property. Demand from these buyers can also make it harder for local people to get on the property ladder.
These rates tend to change with each annual review of the budget. For example, in Victoria, the stamp duty surcharge for foreign buyers will increase in 2016 from three to seven percent. On more expensive properties, this could represent a significant sum, so it's important to find out about this.
For many home buyers in Australia, stamp duty is an unavoidable cost to consider. Before you buy a property, talk to your real estate agent from a company like Carter Real Estate for more information and advice about how this tax will affect the sale price.Share