There are many costs associated with buying a home, and stamp duty is probably the biggest.
Its name sounds innocent enough, but stamp duty is a tax charged by states and territories on property purchases. It can also applied to other acquisitions, such as the sale of assets belonging to a business, vehicles, gifts and some insurance policies. For now, however, our focus in on property.
Why does stamp duty on property exist?
Stamp duty is a tax on transactions and goes back to Australia’s colonial days when a physical stamp was impressed on documents for land sales to make them legally binding. The fee charged was an important source of revenue for early colonial governments.
As a hangover from colonial days, stamp duty is still administered by the states and territories rather than the deferral government. As a result, the amount you have to pay varies from state to state.
In recent years, economists and even some state governments have called for the abolition of stamp duty on property as a way of making housing more affordable. Currently, the ACT is planning to phase out stamp duty gradually over the next 20 years and replace the lost revenue with an increase in council rates.
How much stamp duty do you have to pay?
The amount you pay in stamp duty depends not just on the state in which you live, but also on how much you pay for your new home. Stamp duty is charged on a sliding scale as a percentage of the sale price – so the more expensive your home, the more you have to hand over in taxes.
Most states categorise properties into price brackets (in NSW the most common bracket is $300,000 to $1 million) and charge a lump sum then a percentage of the value over the minimum value in the bracket.
Sticking to the NSW example, if you buy a home between $300,000 and $1 million, you will pay $8,990 plus 4.5 percent of dutiable value over $300,000. For a home between $1 million and $3 million, stamp duty rises to $40,490 plus 5.5 percent of dutiable value over $1 million. For anything more than $3 million, the lump sum is $150,490 plus 7 percent of dutiable value over $3 million.
Victoria charges a lump sum plus a percentage on properties up to $960,000, then a 5.5 percent rate on properties above $960,000, while the Northern Territory uses a formula based on the value of the home to calculate how much you have to pay.
You can use an online stamp duty calculator to determine how much you will have to pay in stamp duty. The important thing is to be prepared for this extra cost and account for it in your home-buying budget.