Stamp duty, also known as Transfer Duty, is a crucial state tax to understand when purchasing property in Victoria. This state tax applies to various property transactions and can significantly impact the overall cost of buying a property. In this article, we'll explore what stamp duty is, how it's calculated, and the key considerations for Buyers, including potential exemptions, concessions, and additional duties for foreign Buyers. Understanding these factors can help you navigate the property market more effectively and avoid unexpected costs.
You may also visit the State Revenue Office (SRO) website: www.sro.vic.gov.au for further information. If you wish to check how much stamp duty you arepotentially liable for, you can access the land transfer duty calculator on theSRO website for further information: https://www.sro.vic.gov.au/calculators/land-transfer-calculator
What is Stamp / Transfer Duty?
Transfer duty is a state tax which is payable on dutiable transactions in Victoria. It is calculated on the Property’s dutiable value which is generally the higher of the consideration payable under the Contract and the property’s unencumbered market value.
How Can You Avoid Double Stamp / Transfer Duty?
As transfer duty is applicable to each transaction, buyers should ensure that the Buyer named in the Contract is the person or entity that intends to own the property. Otherwise, there is the risk of two or more assessments of transfer duty, which can increase the amount payable.
Buyers seeking to purchase property for their SMSF and are planning to buy the Property using a bare trustee as purchaser with a loan then risk paying transfer duty again when the Property is transferred to the SMSF on repayment of the loan.
Are You Eligible for Stamp Duty / Transfer Concessions?
Buyers should carefully consider their current and ongoing eligibility for any concession or exemption that you obtain.
Buyers who do not pay duty or advise the State Revenue Office (SRO) of changes to their eligibility for concessions or exemptions may be identified (as SRO actively cross-check data held by other government agencies) and can seek to recover any shortfall including penalties and interest. Recovery of incorrect or unpaid duty may occur years after settlement and could compound into substantial amounts.
Concessions to Transfer Duty
Depending on your intended use for the property and your personal circumstances, you may be eligible for certain types of concessions or exemptions, such as:
First home buyer duty exemption or concession
Buyers may be eligible for a home concession on the transfer duty if you are purchasing as a first home owner and are going to move into the property within 12 months of settlement and live in the property for at least 12 months.
The first home buyer duty exemption or concession may be available if your home has a dutiable value of:
- $600,000 or less to receive the first home buyer duty exemption (no duty payable)
- $600,001 to $750,000 to receive the first home buyer duty concession (duty to be calculated on a concessional rate on a sliding basis).
The exemption or concession is only available to you once. If you or your partner has received the benefit of this exemption or concession previously, you cannot receive it again.
You may be eligible for the first homebuyer duty exemption or concession regardless of whether you buy a new or established home. The exemption or concession is also available for vacant land.
The dutiable value is usually the contract price. If you buy your first home off-the-plan, the dutiable value is determined after applying any off-the-plan concession. This means it will usually be less than the contract price.
Principal Place of Residence (PPR) duty concession
This concession is available to all homebuyers (not just first home owners) whose property is valued up to $550,000 and who:
- start using the property as their PPR within 12 months of becoming entitled to possession of the property (which usually occurs at settlement), and
- live in the property for a continuous period of at least 12 months.
If there are multiple buyers, at least one of the buyers must occupy the property as their PPR. However, the buyers can satisfy the requirements between themselves. If these requirements are not met, duty will be assessed at the standard rate. The SRO may exercise discretion to vary the residence requirements where there is a good reason to do so.
Land is not considered to be occupied as a PPR unless there is a building on it that is designed and constructed primarily for residential purposes and which can be lawfully used as a PPR.
If a buyer has received the PPR concession, they must notify the SRO in writing within 30 days of any changes in their circumstances that will result in the residence requirements not being met.
This concession may also apply to vacant land intended to be used to build a home. Buyers must move into their home by whichever of these dates occurs first:
- 12 months of the date the buyer can lawfully live in it, which is usually the date the occupancy certificate is issued, or
- 36 months of the settlement date of the land.
Pensioner duty exemption or concession
An eligible pensioner can receive a one-off duty exemption or concession when they buy a new or established home, valued up to $750,000, to live in as their principal place of residence (PPR).
The pensioner duty exemption or concession is also available when the buyers are buyer their first home and when they are buyer a property jointly with someone else, such as a partner or spouse.
To be eligible for the pensioner exemption or concession, the buyer must:
- hold a relevant concession card at the property settlement date
- have never received a pensioner exemption/concession in Victoria
- buy the property for market value
- intend to live in the home as your principal place of residence.
Relevant concession cards include:
- Department of Veterans Affairs (DVA) Commonwealth Seniors Health Card
- DVA Pensioner Concession Card
- DVA Veteran Gold Card
- Services Australia Health Care Card, except the Foster Child Health Care Card (FO or FST) and Carer Allowance Health Care Card (CD)
- Services Australia Pensioner Concession Card
- Services Australia Commonwealth Seniors Health Card.
Off-the-plan concession
The off-the-plan concession is available to eligible buyers of land and a building to be constructed, or a refurbished lot. It reduces the value of the property by the costs of the construction or refurbishment occurring on or after the contract date, reducing the amount of duty to be paid.
To apply for the concession, the seller must complete the digital duties form and provide the SRO with required information. There are 2 methods of calculating this concession – the fixed percentage method and the alternative method – and the seller will nominate a method that applies.
Before the settlement of the property,the seller will advise the buyer’s conveyancer or solicitor of the dutiablevalue of the property after applying the off-the-plan concession. At thatpoint, the buyer’s representative may estimate the duty payable on theproperty.
The date of the contract and the land value on the date of the contract is important in determining whether the buyer is eligible for the concession.
- Contracts signed before 1 July 2017
The concession is available for all property types including those purchased for investment purposes and commercial properties. The concession may apply even if the buyer nominates a substituted purchaser on or after 1 July 2017.
- Contracts signed on or after 1 July 2017
The off-the-plan concession is only available if the buyer also qualifies for the principal place of residence concession or the first home buyer duty exemption or concession.
This means that the buyer must reside in the property for a continuous period of 12 months, starting within 12 months of possession, normally settlement.
One of the following threshold requirements must also be met:
- First home buyer duty exemption or concession the dutiable value of the property, after applying the off-the-plan concession, cannot exceed $750,000.
- Principal place of residence concession - the dutiable value of the property, after applying the off-the-plan concession, cannot exceed $550,000.
Duty will be calculated on the contract price if the duty value exceeds relevant threshold. Failure to meet the residence requirement may result in the transfer being reassessed at the contract price and all concessions or the exemption being removed.
Do Related Party Transactions Affect Your Stamp / Transfer Duty Concession?
Those concessions are only available to genuine buyers for adequate consideration.
This ensures duty relief is available only to buyers who provide full consideration for a property purchased (or fractional interest purchased) and not to those who have already benefited by purchasing at a heavily discounted price or receiving the property as a gift.
For all sales between related or associated parties, additional evidence is required to ensure that adequate consideration has been paid:
- proof of payment of the purchase price (e.g. bank statements, loan agreements and receipts)
- evidence of the market value of the property, such as a:
- letter of appraisal from a licensed real estate agent, or
- valuation by a certified practising valuer who is a member of the Australian Property Institute or by a member of the Real Estate Institute of Victoria with sworn valuer accreditation.
Aggregation of Stamp / Transfer Duty
If you buy two or more properties or enter into two or more contracts that the SRO considers arise from substantially one arrangement you may be liable to pay more transfer duty based on the aggregate value of the assets being purchased.
This could apply if the buyer has:
- previously bought a property from any of the Sellersnoted in the Contract (including family members or associates of any of theSellers, such as companies or officeholders related to any of the Sellers);
- bought an adjoining or nearby property from anyone -particularly to develop these properties together;
- bought a business in conjunction with this transaction;
- negotiated this Contract or Property together with or shortly after other contracts or property; or
- otherwise have reason to believe that the SRO may consider this transaction as one transaction with another contract or agreement.
