Stamp duty in the state of NSW has been updated as of 1st July 2020 which makes it a great time to talk about this topic.
It’s likely one of the biggest single taxes you’ll pay in your lifetime. Consider that the duty on a $1m purchase is about $42,000, which would take the average buyer two years to pay off if they borrowed the funds to pay this. In the next few moments let’s find out exactly how stamp duty will affect your property purchase.
Stamp Duty- now called Transfer Duty.
First, it’s good to know that the name has changed- stamp duty is now called transfer duty, but it’s still effectively the same thing which is a state-level tax on property transactions.
When are you liable to pay stamp (transfer) duty?
With some exceptions covered below, you must pay stamp duty when you buy any property. Yes, transfer duty is a tax that is only payable by the buyer, not by the seller.
This includes buying a family home or a holiday home, an investment property, a farm, or a commercial or industrial property.
How much duty will you pay?
To keep it simple here are the three tax categories that will affect 99% of readers, with numbers rounded down just a touch.
If your purchase is up to $1.033m you will pay $9k plus 4.5% of anything over $310k
If your purchase is between $1.033m and $3.1m you will pay $42k plus 5.5% of anything over $1.033m
If your purchase is over $3.1m you will pay $156k + 7% of anything over $3.101m
If you’re a foreign buyer unfortunately you will pay as per the above PLUS an additional 8% of the purchase price.
Please note that these rates are specific to purchases in NSW. If you are purchasing property in QLD VIC SA or elsewhere then you will pay the duty set by the office of revenue in that state.
How can you avoid transfer duty?
Transfer duty is not payable under a few circumstances:
If you are given the property as the beneficiary of a will then you will only pay $50 transfer duty.
If your wife/husband/de facto transfers a share of their property to you there is no duty payable so long as the new ownership structure of the property sees that you both have an equal share
If you get divorced the family court will often order that no transfer duty is payable on property assigned to you
If you are a first home buyer and your home purchase is less than $800k then you are entitled to a full or partial exemption, depending on how much the purchase is, and whether the property is brand new or existing.
Is transfer duty tax deductible for investment purchases?
Although stamp duty isn’t immediately deductible as an expense, it is considered a capital cost when you sell and will reduce the capital gains tax payable at that time.
Abolition of Transfer Duty?
In recent years there has been talk of abolishing stamp duty in NSW and in other states and at the height of the COVID19 pandemic this conversation once again made newspaper headlines. Some industry experts believe stamp duty abolition is inevitable. However stamp duty raises between $7b and $10b a year for the state government coffers, so until this revenue source is replaced by a viable alternative then stamp duty will remain in force.
So there’s almost everything you need to know about stamp duty.
Don’t forget to factor in stamp duty into your purchase! It can be paid out of your savings or you can borrow to pay it, just be sure you know what you’re up for so there are no nasty surprises when you go to sign on the dotted line.