What is stamp duty and how will it affect your property purchase?

Buying property is filled with a myriad of confusing acronyms and terms you’ve never come across before – and if you’re not careful, some of them can trip you up on your way to your brand new home. 

Stamp duty is a bit like that; if you’re not clued up on what it is and how it applies to your property purchase, it can surprise you. In this blog, we take an in-depth look at stamp duty – so you’ll be well prepared for when it inevitably strikes!

What is stamp duty?

Also known as transfer duty, stamp duty is a tax imposed by state and territory governments on selling and transferring real estate (amongst other things). In very basic terms, it’s a tax you have to pay to have a property transferred into your name.

How much will I need to pay?

While the amount paid in stamp duty varies widely between different states and territories, the cost ranges between 3-6% of the property’s total value on average. For example, if you’re purchasing a million-dollar property, stamp duty could be anywhere up to $60,000!

It’s important to factor in this expense when preparing your finances; otherwise, you can quickly become over-committed. Try this handy stamp duty calculator to see how much you should budget for

When is stamp duty paid?

Stamp duty is normally paid at settlement, however, the exact time frame you have to make this payment does vary between states. Your conveyancer will be able to provide you with advice based on your personal scenario.

Intricacies to consider

Stamp duty isn’t always straightforward, which can sometimes work to your advantage. Exemptions and concessions apply in some states, and some new homes are only liable to pay stamp duty on part of the purchase price. The key factors to check are:

• Exemptions – first home buyers benefit from stamp duty exemptions in some states like Victoria and Western Australia and reductions in other states like Queensland. In NT and ACT, pensioners can also benefit from discounted stamp duty rates. You can research what is available for stamp duty in your state.
• House and land packages – when purchasing land only or a house and land package, you’ll typically only pay stamp duty on the land component (purely because there’s no house to transfer). This can represent a pretty sizeable cost saving.
• Investors – while it’s classified as a capital expense by the Australian Tax Office (therefore not tax-deductible), investors can account for the cost – to some degree –
  when the property is sold. It’s best to speak to your financial advisor about exactly how this works.

Be aware, and be prepared!

Purchasing property (particularly for the first time) can come with a few surprising costs that extend well beyond your deposit and ongoing mortgage repayments. Depending on your situation and which state you’re purchasing in, stamp duty can be a sizeable payment that is important not to overlook.

To make sure you’re fully aware of the ins and outs of purchasing a new home, download our eBook, a first home buyers guide to building or buying a new home.