Can you claim the stamp duty on your investment property?
When it comes to buying an investment property, there are plenty of costs involved in the process.
Inspection reports, legal work, loan applications, title transfers… and that not-insignificant cost of the actual property.
The list goes on and on, and it can feel like everyone has their hand out – not just the seller.
But arguably the most annoying expense you’re gouged with as a buyer is stamp duty.
That pesky land tax can add tens of thousands of dollars to your outlay, which a growing number of boffins recommend governments consider axing, is a bugbear of investors.
Can you claw some of it back?
What is it?
It’s a tax on land, plain and simple.
Stamp duty is a massive source of revenue for state governments and there aren’t many reasons for it to still exist today.
Taxation reviews over the past decade or so have suggested dumping it.
And research has found it has an impact on the quality of living.
The tax, based on the value of the land, adds to the price of property at a time when cracking the market is hard enough.
It also dissuades people from moving to certain areas and therefore increases commute times and forces people to sacrifice their proximity to family, work and schools, among other things.
And it acts as a barrier to older Aussies downsizing.
The Real Estate Institute of New South Wales has been lobbying hard for the State Government to review stamp duty.
The industry body says that despite a softening of the Sydney property market, which has seen the median house price drop to $945,000 (in the 12 months to February), the transfer duty payable on the median house price ($41,000) is unaffordable for most purchasers trying to get into the market.
In fact, the total NSW Transfer Duty revenue for the 2018-19 financial year was just over $7.5 billion.
Further data shows that the number of dutiable transactions in June 2019 was 15,964 which was the lowest number of dutiable transactions in NSW in the past 13 years.
The Real Estate Institute of Victoria (REIV) has also been pressing the issue hard.
Can you claim it?
Being a property investor opens you up to some pretty good perks, especially when it comes to tax deductions.
You can claim a number of those costs I mentioned – legals, rates and inspection reports to name a few – to reduce your taxable income.
Given stamp duty is an expense directly related to your investment, you should be able to whack that in next tax time… right?
The Taxation Office considers that huge chunk of change to be part of the cost of acquiring the property.
In their view, it’s part of the base cost of the property and given you can’t claim the purchase price… you can’t claim the tax either.
It’s not very fair, but that’s the way it is.
So… I can’t recoup any of it?
On the stamp duty, there is a bit of good news.
But you’ll have to wait for it to materialise.
You can put the outlay of stamp duty towards lowering your capital gains tax liability when it comes time to selling your property.
Just as the taxman counts it as part of the base acquisition cost, so can you on the other end.
Let’s say you recently paid $800,000 for an investment property in inner Melbourne in September 2019.
The stamp, or transfer, duty on that purchase because it is an investment property is currently a staggering $43,000 – another reason why it needs to be axed!
If you sell it in five years for $1 million, then the capital gain is $157,000 – not $200,000 – which will reduce the tax you will have to pay.
That’s something, right?
Getting the right financial advice about stamp duty
Investing in property involves myriad costs including a big lump sum to the relevant state government in the form of stamp duty.
While there’s long been debate about whether it should be axed, the reality is it’s probably not going anywhere anytime soon.
The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.
This approach has been vindicated many times by our multi award-winning approach.
So, if you’d like to understand more about stamp duty, why not contact Intuitive Finance today to ensure you have the right information and expert support on your side from the very beginning.
If you’d like an expert to teach you more about stamp duty and tax or if you have any other questions, please just contact us directly and we’ll be in touch.
Discuss your specific needs & formulate the right strategy for you. Get in touch to organise your complimentary 60min session today!
The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.
Nigel has a strong passion for helping clients achieve their financial goals through identifying their needs and building strategies to accomplish them. Outside of work, Nigel enjoys spending time with his beautiful wife & baby daughter and also enjoys playing basketball, skiing, golf and is hoping that the fortunes of the Carlton Football Club turn around quickly!
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