Stamp Duty Explained

When property is legally transferred from seller to buyer, the State Government will levy a tax on the purchase of the property, known as stamp duty. This means that before ownership of the property is transferred to the buyer, the buyer must pay to the State Government stamp duty. The payment of stamp duty simply represents an opportunity for the government to raise revenue.

The Duties Act 2000 provides that when there is the transfer of a dutiable property, stamp duty must be paid. A transfer from seller to buyer technically occurs at settlement, however given the impracticability of actually paying the stamp duty at settlement, physical payment must occur no later than within 30 days of that settlement.

If when completing the purchase of your property you require a mortgage, your bank will attend to the payment of stamp duty on your behalf. If no mortgage is required, your lawyer will similarly also attend to payment of stamp duty on your behalf.

The State Revenue Office has recently implemented a system whereby stamp duty can be paid online by legal firms that have signed up to that system.

As such it is the buyer that is responsible and must pay the stamp duty to the State Government. When buying property it is important to remember and factor in the payment of stamp duty, as some buyers can be surprised and shocked when advised of this requirement.

Should payment occur post the 30-day period, late penalties, which can be considerable will be levied by the State Revenue Office, the body tasked by the State Government with collecting these taxes.

The amount of stamp duty that will be payable is calculated on an ad valorem basis which is based on the purchase price of the property. This means the greater the purchase price of the property, the more stamp duty that will be payable.

Should a Contract of Sale provides that GST is payable by the buyer as part of the purchase price, the State Revenue Office has formed the view that stamp duty will be calculated on the sale price plus the GST that is payable, essentially a tax on a tax.

There are however a number of limited circumstances in which an exemption or concession can be applied for. Common examples include when a husband or domestic partner wishes to transfer a property to their wife or domestic partner or vice versa, the State Revenue Office will not charge duty on the transfer.

Similarly in the event that a marriage or relationship breaks down and a property is transferred as a result of a settlement, stamp duty is not payable.

However if a parent was to gift a property to a child or indeed any other family member or third party, the State Revenue Office deems this to be a dutiable transaction and stamp duty based on the value of a property must be paid in full to complete the transaction.

Another common concession will apply when you buy a property that is off the plan. An off the plan purchase means that you are buying a property that has yet to be built. When this occurs a deduction from the purchase price is permitted for an amount equal to the construction cost that occurs after the date of purchase.

So if at the date you enter into an off the plan contract of sale and no construction has occurred, effectively stamp duty is only being calculated based on the land value, not the purchase price.

As always this article contains general information only and should not be relied on for detailed advice related to your particular circumstances. Should you require such advice, please contact your lawyer.

Adam Zuchowski is a principal property lawyer with Network Legal & Associates.

About the author

Adam Zuchowski is a Principal Solicitor at Network Legal & Associates. Adam is well known for his work within the property sector and has previously written for many publications including a regular column in the Herald Sun.

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