How stamp duty affects investment properties
Financing an investment property isn't just about covering the purchase price. There are a number of other costs to consider, too. Stamp duty is one of the biggest costs associated with buying a property, whether you’re investing or buying a home to live in. So, what is stamp duty and how does it affect you if you're buying a property for investment purposes?
What's stamp duty?
Stamp duty is a state or territory government tax the buyer pays when purchasing a home or investment property. Stamp duty applies to properties as well as motor vehicles, insurance policies, leases and mortgages, as well as hire purchase agreements.
Stamp duty goes towards funding government services and infrastructure. It's a one-off, lump-sum cost and you pay it in addition to other expenses like registration fees and legal costs. Stamp duty is usually one of your biggest expenses when buying property. It's often paid before settlement or prior to transferring the land title into your name, but always within 30 days of settlement. Typically your lender or legal representative will make the payment on your behalf.
First home buyers, pensioners, or people purchasing low-value property, deceased estates or off-the-plan may be exempt in some situations. Check out your state or territory regulations to see if you’re eligible.
Calculating stamp duty
Stamp duty can vary significantly depending on the state or territory in which the property is located, and it could add tens of thousands of dollars to the cost of an investment property. The amount you pay is usually based on whichever is higher: the purchase price or the valuation of your property. So, the more expensive your property, the higher your stamp duty is likely to be. An example of an instance when you might purchase a property for less than it’s valuation price would be if you purchased the property from a family member at a lower price than it’s worth.
- In NSW you’d pay $1.25 for every $100, for any property sold for up to $14,000.
- The rates keep scaling up, and for a property sold for between $80,001 and $300,000, you'd pay $1,290 plus $3.50 for every $100, that the value exceeds $80,000.
- The rates only get higher and for any property over $3 million, you'd pay $150,490 plus $7 for every $100, that the value exceeds $3 million.
Check with the state or territory's revenue office for applicable rates and stamp duty calculators. Generally, you could pay less in stamp duty if the following apply:
- Cheaper property - Since stamp duty is calculated on an increasing scale based on your property value, the cheaper your property, the less you'll pay in stamp duty.
- Lower building costs - If you buy a house and land package, you could end up paying less if you cut the costs of building the property.
- Off the plan - If you buy off the plan, the amount you use to calculate stamp duty is usually the value of the land and building at the date of the contract of sale. So if the property hasn't been constructed, you'd end up paying less in stamp duty than for the finished property.
How stamp duty affects investment property
Stamp duty is a major cost you must plan for when working out purchase costs and applying for loans. If you're buying property in Victoria or Queensland, you could end up paying more in stamp duty if it's an investment property and not an owner-occupied one. However, in the other states and territories you're likely to pay the same amount whether it's an owner-occupied property or an investment.
If you're buying a property as an investment, you won't be able to claim stamp duty as an expense for tax purposes, unlike things such as legal costs and inspection reports. Additionally, it's included in the cost of your property when working out capital gains. However, you can claim it (deduct the stamp duty amount from the total capital gain) to lower your capital gains liability when you eventually sell the property, though obviously you could be waiting decades to realise the saving.
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To summarise: stamp duty is a major cost of purchasing property, paid by the purchaser to the state/territory government. Stamp duty is regulated by the relevant state or territory government and rates can vary dramatically from state to state. How much you pay will also depend on the property value or the sale price. While exemptions, concessions, and rebates are generally only available to those buying to live in the property, in some cases, buying off the plan and lowering building costs could help investors save on stamp duty. You can offset your capital gains liability by the amount paid in stamp duty once you sell the property.
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