Stamp Duty; friend or foe?

There is a lot of news in the media right now about Stamp Duty on the Transfer of Land. For a buyer, the cost of stamp duty is a significant upfront cost when buying property.

We often get asked by the media about stamp duty and how Australians (and in particular, Melburnians) feel about it. It was an interesting topic to discuss because many points were raised—some good, most bad—yet the reality is that nobody really has answers or alternatives as to whether stamp duty should be abolished.

For those who don’t understand how stamp duty works, there is a sliding scale for varying price breaks and certain formulas apply to the calculation of the duty in each bracket. As shown below in the table, the full rate which Victorians pay for any investment property purchase applies as follows:

Dutiable Value – VIC	Duty Payable – VIC
$0 – $25,000	1.4% of dutiable value (PPR concession not available)
$25,001 – $130,000	$350 + 2.4% of dutiable value over $25,000 (PPR concession not available)
$130,001 – $440,000	$2,870 + 5% of dutiable value over $130,000
$440,001 – $550,000	$18,370 + 6% of dutiable value over $440,000
$550,001 – $960,000	$2,870 + 6% of dutiable value over $130,000 (PPR concession not available)
Over $960,000	5.5% of dutiable value (PPR concession not available)

At the time of writing this, Victoria has the highest rates of all of the states and territories. And especially when we compare to Queensland, we find that the discrepancy between the two states is considerable.  On a property purchase with a dutiable value of $350,000, stamp duty will add to the overall costs:

• ACT ($12,250)
• NSW ($11,240)
• NT ($9,800)
• QLD ($10,075)
• SA ($13,830)
• TAS ($11,550)
• VIC ($13,870)
• WA ($10,735)

On a $700,000 dutiable value, stamp duty will be between $24,525 (QLD) and $37,070 (VIC). So there are varying formulas which apply to certain price points, inconsistencies between the states, and to overlay that complexity with another one, we also have concessions and exemptions which can apply in each state.

In Victoria, one of the most well known concessions applies to Owner Occupied properties. For these purchases there is no means testing, no restriction on how many owner occupied purchases this could apply to, and no limitation based on spousal past-purchases.  The only criteria is that the property is occupied by the owner within 12 months of purchase and lived in for a period of no less than 12 months continuously. Other concessions do apply and these can be found on the sro.vic.gov.au website.

The recent changes to stamp duty for first home buyers are probably the most talked about in the media.

The State Government have decided to discount stamp duty for approved First Home Owners by 20% now, 30% from Jan 2013, and so on until a 50% reduction applies.

Only Victoria and NSW offer stamp duty savings for off-the-plan purchases and these savings can appear to be very advantageous. One word of caution though—don’t let stamp duty savings cloud your judgment. For any investor who wants attractive capital growth and healthy rental prospects; make sure your investment property ‘stacks up’.  Savings of $20,000 in stamp duty are eroded in the years that follow if the performance of the asset is sub-standard.

So in this detailed, sometimes confusing and often frustrating world of property duty and tax—make sure you understand the numbers before you embark on the journey.

One positive aspect that our team glean out of stamp duty is that it slows down the volatility of this asset class. After all, who can afford the costs of stamp duty if property investment is a short term, trading-style profit making exercise? The hefty trading costs (including agent’s fees and Capital Gains Tax) mean that every property investment decision has to be the right one.

Property is not a terribly forgiving asset class for mistakes.