Why you cannot ignore stamp duty
Is this the first time you have heard of stamp duty? If so, then you should know that stamp duty may be one of the biggest costs you may have to budget for before buying your next property.
You are probably asking yourself: What exactly is stamp duty? What are the costs? Who gets the money? Why do I have to pay it?
Keep reading and I’ll help answer these questions for you.
What is stamp duty?
In short, stamp duty is a charge imposed by state governments on certain transactions. How does this affect you? Well, stamp duty is an amount of money that you are liable to pay on the purchase or transfer of property.
In New South Wales, stamp duty is administered under the Duties Act 1997 and is payable to the Office of State Revenue.
Fingers crossed, the soaring revenue from stamp duty is put to good use by the State Government.
Are you paying too much stamp duty?
Stamp duty is calculated based on the amount paid for the property or the market value (unfortunately, stamp duty is usually calculated on the higher amount).
For example, if you were purchasing a property today for $400,000, your stamp duty liability would be approximately $13,490. Yes, that isn’t a typo, you will have to pay a cold hard $13,490.
To estimate and budget for the amount you need to pay for stamp duty, check out the Office of State Revenue’s on-line stamp duty calculator for Sydney.
How can I avoid paying stamp duty?
Like death and taxes, the payment of stamp duty in NSW for the purchase or transfer of property is generally inevitable, unless stamp duty is exempt.
Some current exemptions for stamp duty may include:
- first home owners grant for purchases or transfers of newly built homes;
- vacant land for new home construction;
- off the plan purchases; or
- transfer of property/land to a trustee or to a spouse.
Government policies and incentives are constantly changing, so it is important that you stay up to date on any stamp duty exemptions in NSW before looking for your next property.
When does stamp duty have to be paid?
Stamp duty is generally required to be paid within 3 months of the transaction.
The purchaser pays stamp duty on or before the settlement date. If the purchaser has available funds, payment of stamp duty can be made prior to settlement. However, if the purchaser is borrowing funds to cover the stamp duty amount, it is common for stamp duty to be paid on the settlement date.
Common pitfalls to avoid
Now that you have a better idea about stamp duty and what you may potentially be liable to pay, there are some issues that you should not overlook.
- Some purchasers often fail to consider the significant stamp duty payable in their budget before shopping for a property. In the example given above, if you were looking to purchase a property worth $400,000, then be sure to also have available funds for stamp duty of approximately $13,490.
- If more than one property is purchased from the same vendor or seller, you could incur higher stamp duty if those properties are classified as aggregate and as a single transaction.
- If you fail to pay stamp duty on time, penalties may be imposed against you.
If you need any assistance on stamp duty or require further information, please feel free to contact one of our Sydney Lawyers on 1300 667 461.
Ask us for your free consultation with a solicitor in our Sydney office.
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