Stamp duty has certainly been in the news a lot lately, not only in WA but also in NSW and Victoria. So why has it all of a sudden become such a hot topic? What exactly is stamp duty anyway? And how might the changes impact you?
This blog breaks down the basics for you.
What is stamp duty?
Stamp duty on a real estate transaction (aka ‘transfer duty’) is a state government tax paid by homebuyers before settlement can occur.
How much is it?
In WA the amount of stamp duty paid depends on the following variables:
- The value of the property being purchased;
- If you are a first homebuyer;
- If you are a foreign buyer; and/or
- The type of property being purchased.
If you are not a first homebuyer, a foreign buyer and not buying a unit off the plan, stamp duty will cost 4% of a property’s sale price. This is a significant amount given you would pay around $17,000 in stamp duty if you buy a home at the current Perth median house price of $495,000. Click here to access REIWA’s stamp duty calculator.
Is anyone exempt from stamp duty?
Yes. First homebuyers in WA are exempt if the property value is under $430,000. A concessional stamp duty rate applies for properties up to the value of $530,000 for first homebuyers. If you are a first homebuyer, check out 20/11-15 St Leonards Street, Mosman Park as it is on the market for just $410,000 meaning you won’t pay stamp duty on it!
For buyers purchasing off the plan, a 75% rebate is available on stamp duty (available till October 2021).
Foreign buyers must pay an additional 7% surcharge on top of the normal stamp duty cost on any property purchase.
Why is stamp duty such a hot topic right now?
Stamp duty adds a considerable amount to the total cost of moving, especially if buyers have to add the stamp duty amount to their home loan. As a result, many people thinking of upsizing, downsizing or relocating decide to stay put. They either can’t afford the stamp duty or can’t afford to save up enough deposit because of the tax. Essentially the stamp duty is the proverbial ‘straw that breaks the camel’s back’. This creates a domino effect because when people don’t move, there is less available for first homebuyers to purchase. It also has a negative impact on our economy.
What has been suggested as an alternative for stamp duty and why can’t stamp duty just be scrapped?
Let’s tackle the second part of this question first. Combined property taxes make up one third of WA’s revenue, so it is important for our economy. Therefore an alternative that benefits buyers and the economy had to be sought. The alternative put forward by the Real Estate Institute of WA is a broad-based tax system. This would see the upfront tax payment be replaced by an annual payment to be paid in a similar manner to the way land owners pay council rates. Spreading out the cost in this way will make home ownership and the ability to move viable for more West Australians, while creating a steady income stream for the state government to put back into our economy.
With the Australian economy under significant pressure following the COVID-19 restrictions (and now officially in recession), the government and industry bodies are looking at ways to stimulate the market and the economy. Removing the burden of an upfront stamp duty payment will boost WA’s economy by helping more people move. According to REIWA modelling, every residential property transaction adds around $20,000 into the economy through employment, trades and retail spending. The WA government has committed to undertaking a review into the replacement of stamp duty with a broad-based tax system paid annually, which is an excellent start.