How stamp duty affects investment properties

Stamp duty is one of the biggest costs associated with buying a property, whether you’re investing or buying a home to live in. So, what is stamp duty and how does it affect you if you're buying a property for investment purposes?

What's stamp duty?

Stamp duty is a state or territory government tax the buyer pays when purchasing a home or investment property. Stamp duty goes towards funding government services and infrastructure. It's a one-off, lump-sum cost and you pay it in addition to other expenses like registration fees and legal costs.

Stamp duty is usually one of your biggest expenses when buying property. It's often paid before settlement or prior to transferring the land title into your name, but always within 30 days of settlement. Typically your lender or legal representative will make the payment on your behalf.

Calculating stamp duty

Stamp duty can vary significantly depending on the state or territory in which the property is located, and it could add tens of thousands of dollars to the cost of an investment property. The amount you pay is usually based on whichever is higher: the purchase price or the valuation of your property. So, the more expensive your property, the higher your stamp duty is likely to be. An example of an instance when you might purchase a property for less than it’s valuation price would be if you purchased the property from a family member at a lower price than it’s worth.

How stamp duty affects investment property?

Stamp duty is a major cost you must plan for when working out purchase costs and applying for loans. If you're buying property in Victoria or Queensland, you could end up paying more in stamp duty if it's an investment property and not an owner-occupied one. However, in the other states and territories you're likely to pay the same amount whether it's an owner-occupied property or an investment.

If you're buying a property as an investment, you won't be able to claim stamp duty as an expense for tax purposes, unlike things such as legal costs and inspection reports. Additionally, it's included in the cost of your property when working out capital gains. However, you can claim it (deduct the stamp duty amount from the total capital gain) to lower your capital gains liability when you eventually sell the property, though obviously you could be waiting decades to realise the saving.

To find out more about stamp duty and how this affects you, get in touch.