Stamp duty for property transfers is a large expense, and property investors often ask if it is tax deductible. Unfortunately for property investors, you can’t claim a deduction for stamp duty straight away. However, it can reduce the capital gains tax liability when you sell the property.
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What is stamp duty?
Stamp duty, also known as transfer duty, is a form of tax that State and Territory Governments charge for certain documents and transactions, including the transfer of a property.
Each state and territory have different stamp duty calculation methods. Therefore, the amount of stamp duty charged for a property sold in Victoria may be different for a similarly priced property in New South Wales. The timeframe of when stamp duty is payable also varies across states and territories.
Is stamp duty tax deductible?
Capital costs associated with acquiring a property, such as stamp duty, can only be used to offset capital gains. The exemption is when an investment property is acquired in a Territory under a crown lease. Stamp duty and costs to incur the crown lease are immediately tax deductible.
Capital costs may also include legal fees, conveyancing and pest inspection fees incurred when acquiring the property. As a property investor, it’s important to understand what your capital costs are and how they form a part of your property cost base.
Your property cost base and CGT
The good news for property investors is that as stamp duty forms a part of your cost base, it can reduce the CGT liability when you sell the property. Your ‘main residence’ (your home), as defined by the Australian Taxation Office, is generally exempt from CGT.
Fundamentally, CGT is a tax you pay on the profit made from the sale of a property. CGT is a complex topic for property investors and many factors come into play when paying CGT on the sale of your investment property such as discounts, depreciation and exemptions.
The basic formula for calculating CGT is as follows:
(Selling price – transaction costs) – (original purchase price + associated transaction costs) = capital gain (or loss)
The amount paid in stamp duty positively affects the CGT formula for the investor by increasing the cost base value as a capital cost.
What does this mean for property investors?
As a property investor, stamp duty can work favourably for you in the long term. When you decide to sell your investment property, stamp duty forms a part of the cost base and can reduce the amount of CGT payable.
It’s important to understand how your investment circumstances, capital costs and depreciation claims impact CGT liabilities to help best guide your investment strategy. For more information on available tax deductions and capital costs, visit our website at bmtqs.com.au or contact our specialist team on 1300 728 726.
Related articles:
Re; Stamp Duty on a rental property. I understood when purchasing a rental property in the Australian Capital Territory (ACT), it is a Crown Lease and therefore in the nature of a lease.
The stamp duty relates to the Crown Lease and is therefore deductible under section 25-20 Lease Document Expense of the Income Tax Assessment Act 1997.
Please provide your views on this matter.
Thank you
Hi Dino,
Thank you for your comment.
Yes, properties in the ACT and are commonly acquired under a 99-year crown lease. Therefore, stamp duty, preparation and registration costs you incur on the lease of an ACT property are deductible to the extent that you used, or will use, the property to produce income.
Should you have further questions, please contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
Not true If you’re investment property is in the ACT. Conditions do apply of course!
Hi Fraser,
Thanks for your comment.
Yes, properties in the ACT and are commonly acquired under a 99-year crown lease. Therefore, stamp duty, preparation and registration costs you incur on the lease of an ACT property are deductible to the extent that you used, or will use, the property to produce income.
Should you have further questions, please contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
My understanding is that stamp duty paid on purchases in the NT and ACT are deductible in the year of purchase due to the land being leasehold and not freehold.
Hi Pam,
Thanks for your comment.
Stamp duty, preparation and registration costs you incur on the crown lease of a property are deductible to the extent that you have used, or will use, the property to produce income.
Should you have further questions, please contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
Is stamp duty on act property a revenue deduction
Hi Kerry,
Thank you for your comment.
ACT property is commonly acquired under a 99-year crown lease. Stamp duty, preparation and registration costs you incur on the lease of an ACT property are deductible to the extent that you used, or will use, the property to produce income.
Should you have further questions, please contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
Re stamp duty deductibility, could you please clarify the issue in the Australian Capital Territory where you’re actually buying a crown lease rather than freehold. I’m of the understanding ACT stamp duty paid on purchase is fully deductible in the FY of purchase.
Hi Martin,
Thank you for your comment.
Stamp duty, preparation and registration costs you incur on the crown lease of an ACT property are deductible to the extent that you used, or will use, the property to produce income.
Should you have further questions, please contact our expert team on 1300 728 726 or visit our website at bmtqs.com.au for more information.
Thanks,
BMT Team
I have a residential property I purchased in 2015 which I resided in from the beginning for 1 year and 3 months before my circumstances changed and needed to lease the property. Is stamp duty deductible only in the financial year it is incurred? If not, will getting a deduction while the property is income producing affect the Principal place of residence exemption (‘6 year rule’)?
Hi Christos,
Unless your property is in the ACT, stamp duty is not tax deductible. Instead it’s added to the property’s cost base, which reduces any capital gains tax when you sell the property. If it is in the ACT, a deduction would be available but only in the year it was incurred. As you were living in the property initially, no deduction will be available. We recommend discussing the details with a trusted accountant.
Thanks,
BMT Team
Hi team BMT,
If i purchase a property but live in it (not PPR) and then move out, can i still add the stamp duty cost to cost base (to reduce the CGT on sale)?
Or to ensure the stamp duty can be added to the cost base, does it need to be first rented out for a period? if so, how long?
Thanks
Hi Fiona,
Thanks for your comment.
This is a complex area and only your accountant can advise on how stamp duty can be added to your property’s cost base. They can also discuss CGT discounts and exemptions that may also apply to you.
Thanks,
The BMT Team