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Proposed stamp duty changes in NSW and what they mean for residential investors

BMT team — Sun, 07 Mar 2021 22:29:43 +0000

The New South Wales 2020-21 budget announcements included a number of measures aimed at boosting the economy. One of which was the first major stamp duty reform in over 150 years. Stamp duty in New South Wales was introduced in 1985 – a time when property prices were much lower, and people moved around less. With this in mind, many argue that the current policy is outdated and does not serve its original purpose in the world we now live. But what do the proposed stamp duty changes mean for residential investors in New South Wales? What is the proposal and what does it mean for investors? Before we get started, it’s important to note that this change is still a proposal and subject to change following community feedback. But for the sake of this discussion, we will consider what it currently means for investors. The current proposal will give those looking to buy a home two options: 1. Pay stamp duty upfront and ongoing land tax (i.e. the current compulsory arrangement) 2. Pay an ongoing annual property tax These options are available for everyone looking to buy a residential or commercial property, including investors. The rate of the property tax changes between the groups, so the tax rate for an owner-occupier won’t be the same as it would be for an investor. What does this mean for residential investors The current proposal is available for property purchased for residential owner-occupiers, investors, primary producers and commercial owners. The proposal includes a rate framework, where the property tax rate changes depending on the purpose of the land. The suggested annual property tax rate for investment properties is as follows. $1,500 + 1 per cent of the unimproved land value Investors will still have a choice. One of the biggest drawcards for investors is that the proposed annual property tax will be tax deductible in the financial year it’s paid. While currently land tax is also tax deductible, stamp duty isn’t directly. Stamp duty is classed as a capital cost. This means it isn’t a deductible expense but is instead included in the property’s overall cost base. Case study – proposed stamp duty reform Martha is a first-time property investors and is deciding whether she will go down the traditional path of stamp duty and land tax or pay the new property tax. She has a relatively short investment strategy and wants to sell the property in four years’ time, based on the market growth. Therefore, her overall aim is to go with the option that will save her money at the very beginning when her financial outlay is higher. The table below shows the scenario of both options Martha decides to go down the property tax route. This resulted in a first-year cost of $6,600, instead of paying upfront stamp duty of $33,585. Over the four years of ownership, the total property tax payable would be $27,593. She will also benefit from claiming property tax as a deduction each financial year. BMT Tax Depreciation is here to help you in every stage of your property investing journey. The BMT team works with you, your accountant and your property manager to ensure you claim the most depreciation deductions possible. To learn more about BMT, Request a Quote or call the team on 1300 728 726.

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Is stamp duty a tax-deductible expense for property investors

BMT team — Mon, 20 Jan 2020 00:41:44 +0000

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. Key points: Stamp duty is a form of tax charged by State and Territory Governments Stamp duty is a capital cost and isn’t immediately tax deductible When selling an investment stamp duty can decrease your capital gains tax (CGT) liability through increasing the property cost base. Contents What is stamp duty? Is stamp duty tax deductible? What does it mean for property investors? 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: When do you pay capital gains tax on investment property? Does depreciation affect capital gains tax?

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A state by state guide to stamp duty

BMT team — Tue, 12 Sep 2017 00:54:16 +0000

Spring is a time associated with increased investor and home buyer activity. There is usually also a greater range of properties available on the market. For first homebuyers it is important to be aware of what concessions are available if you are considering buying a property at this time of year. Stamp duty is one major – but inescapable – cost you need to be aware of and factor into your budget when buying a property. This tax is collected by state and territory governments and each state has its own methods of calculating stamp duty. This means what you’d pay for a similar property in different states could be completely different. Furthermore stamp duty can vary depending on whether it’s an established or new home, if you’re a first home buyer, an owner occupier or an investor. The purchase price of the property can also be a factor in the amount of stamp duty paid. As you can see, it’s not a one size fits all measure and can therefore be confusing for homebuyers. Stamp duty is based on either the market value of the property or the price paid; whichever is greater. Therefore, the more expensive a property is, the more stamp duty you will have to pay. Our state by state guide to stamp duty below provides all you need to know about the latest stamp duty concessions available. Please note that the below summary does not contain information on the various grants available for first home buyers. These also vary between states and should be researched prior to any purchase. New South Wales On the 1st of July 2017, the First Home New Home scheme was replaced by the First Home Buyers Assistance scheme. Under this new scheme, first home buyers will not have to pay stamp duty for both new and existing homes for properties up to $650,000. The duty will be reduced for amounts between $650,000 and $800,000. There is no change to the cap for vacant land. Queensland There are several stamp duty concessions for Queensland homebuyers. A First Home Concession is available, whereby a predetermined amount (based on purchase price) is deducted from a set home concession rate. As per the calculations, no transfer duty is payable when a first home concession is claimed for a home valued at $500,000 or less. Furthermore, the duty is reduced for properties up to the value of $549,999.99. For any property above this price there are no concessions. There is also the First Home Vacant Land concession. For vacant land under the value of $250,000 there is no duty payable. Tiered concessions are available up the value of $399,999.99. There is no concession for land over the value of $400,000. Victoria Stamp duty (land transfer duty) for first-home buyers purchasing a home to the value of $600,000 has been abolished for contracts entered into from the 1st of July 2017. Furthermore, duty will be phased-in for eligible first-home buyers who purchase a home with a dutiable value between $600,001 and $750,000. A concession which was previously available for those who choose to build off-the-plan has also been abolished and from the 1st of July 2017. This has become the principal place of residence off-the-plan concession. The new PPR OTP concession is now limited to the purchase of a principal place of residence (PPR) and is relevant for determining whether a transfer meets the dutiable value threshold for a: Principal place of residence concession (dutiable value up to $550,000) First-home buyer duty exemption (dutiable value up to $600,000), or A first-home buyer duty concession (dutiable value above $600,00 and up to $750,000) Western Australia When a home buyer is eligible for the First Home Owner Grant in Western Australia, a concessional rate of transfer duty will apply if the value of the dutiable property is below certain thresholds. The First Home Owner Rate of Duty applies to transactions with a dutiable value of up to $530,000 for a house and land, or $400,000 for vacant land. Australian Capital Territory The Home Buyer Concession Scheme (HBCS) is an ACT Government initiative that assists homebuyers of residential homes or vacant property by charging duty at a concessional rate. The concession applies to the purchase of a new home or a block of vacant residential land where the transaction date occurs between the 7th of June 2017 and the 31st of December 2017. The HBCS applies at different levels depending on the transaction date as well as the purchase price of the property. It should be noted that substantially renovated homes are no longer eligible for the HBCS; this applies only to new homes (those which have not previously been occupied or sold as a place of residence) and vacant land (land without a home or dwelling built on it). There are a few different thresholds which will determine the amount of duty paid. For new homes to the dutiable value of $470,000 or less there is a $20 minimum duty. For new homes with a value more than $470,000 but less than $607,000, a concessional duty of $13.05 for each $100 over the $470,000 value is payable. For homes over $607,000 there is no concession available. For vacant land to the dutiable value of $281,200 or less, there is a $20 minimum concessional duty payable. For vacant land to the value of more than $281,200 but less than $329,500, a concessional duty of $13.05 for each $100 over the value of $281,000 is payable. No duty concessions are available for vacant land with a dutiable value of more than $329.500. Northern Territory From the 1st of September 2016, the Northern Territory Government introduced increased stamp duty assistance for first home buyers who purchase an established home in the Northern Territory up to the value of $650,000. The First Home Owner Discount (FHOD) is a full stamp duty concession on the initial $500,000 value of a home, which equates to stamp duty savings of up to $23, 928.60. First home buyers that are […]

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