Stamp duties, or transfer duties as they are officially known, are taxes paid to the state government by the person buying or otherwise receiving real property. They are generally due on the date of the sale in an amount that depends on the value of the property. They are also among the last-minute costs that drive home buyers to distraction. While they are subject to all sorts of exceptions and refinements, it is extremely important to get them right in order to avoid tax problems and ownership disputes. It is important to be aware that they are also changing.
As of 1 July 2019, the seven brackets that determine how much tax is due will begin to increase with inflation. Although the immediate impact may be small, the indexing is ultimately expected to make home ownership more affordable, all other things being equal. That, of course, is the hitch.
Stamp duties today
For those who expect to buy property before mid-2019, the transfer tax structure including the brackets that have been in place since 1986 will remain in place. Although there are many handy online “stamp duty calculators,” buyers should realise that the twists and turns in the law may affect the amount that is actually due or whether anything is due. It is not necessarily just a matter of entering the purchase price and state and hitting “Enter.”
For example you may be eligible for an exemption from the transfer duty if you are a first-time home buyer, over the age of 60, or are receiving property from a deceased’s estate. The same may be true if you are entering a marital or de facto relationship or getting divorced.
The amount of duty is determined not by the purchase price, but by the value of the property as determined by a registered valuer. It is a fine point but it may make a significant difference in a distress sale, with respect to a gift or in a rapidly fluctuating market. If you are receiving only part ownership then your transfer duty obligation will be calculated only on your share of ownership.
Insidious “bracket creep”
The pre-2019 brackets are not indexed and have remained largely unchanged for three decades. Stamp duty in NSW is currently levied like the income tax, starting at 1.25 percent on the first $30,000 of a property’s value, with the tax increasing to 3.5 percent above $80,000, 4.5 percent above $300,000, 5.5 percent above $1 million and 7 percent above $3 million.
During the past 15 years, however, the median house price in Sydney has climbed from around $400,000 to just over $1 million. The stamp duty “bracket creep” caused by property price inflation has pushed the average rate of duty payable up by nearly three quarters of a percentage. NSW Treasurer Dominic Perrottet has estimated that, if indexing had been introduced in 1986, the buyer of a $1 million home in Sydney today would pay approximately $8,000 less in stamp duty.
Indexed brackets moderate the financial pain
Relief seems in sight, but will not be immediate because of the gradual effects of indexing. Average NSW home buyers may see savings in the range of $500 by 2021, and the savings are expected to increase over time.
The tax brackets are just one of many pieces in the puzzle of home affordability. The Sydney housing market seems to be cooling after several years of red hot growth, and more radical proposals including ones for the effective abolition of the transfer tax emerge from time to time.
Buyers must still choose wisely and contain costs wherever possible. The need for sound legal, financial and real estate advice has never been clearer.
The attorneys at Owen Hodge Lawyers would happy to guide you through the entire process of buying a home, including the calculation of the stamp duty that will be due, especially in light of the new changes. Please call us at 1 800 770 780 to schedule a consultation at your earliest convenience.
Did you know that property transfers are going electronic in NSW? Read all about the new process on the Owen Hodge Blog.