Tax obligations can be different for property investors as compared to someone in an owner-occupied home. Being a property investor, some expenses related to owning a property are tax-deductible. In today’s blog, we’ll discuss what expenses can be tax deductible, is stamp duty tax deductible in Australia, and much more.
What is Stamp Duty?
The stamp is also called ‘transfer duty’, which is a tax you need to pay to the territory and state governments when you make certain transactions. These transactions include mortgage or lease applications, transference of properties, and not only real estate but also businesses or shares.
It is quite difficult to know what you can and can’t claim on tax in the property market. When you purchase a property, there are various aspects that you can claim on your tax return, such as fees associated with applying for and getting a new property. It is common for buyers of property to wonder whether or not this fee is tax deductible, or if they can claim some expenses. Well, complete information will be given on, whether is stamp duty tax deductible in NSW or other states or territories in Australia.
Who is required to Pay Stamp Duty?
Basically, you are required to pay stamp duty when you’ve purchased:
- a home, including those used as holiday homes
- vacant land
- investment properties
- a business when included with the land
- industrial or commercial properties
Is Stamp Duty Tax Deductible on Investment Property?
If you are looking to become a property investor or home owner, you need to pay stamp duty as it is important and a capital cost which is a once-off payment of land or buildings. Most likely, you are required to pay the full amount of stamp duty that your territory or state governments charge.
However, recently some states have permitted first-time home buyers to not pay stamp duty on their new house. The sole condition is the price of the house, in NSW, the home owners can pay an annual tax instead of paying upfront stamp duty. It is always recommended to check whether you qualify for an exemption in your territory or state which can be done through the Australian government.
Can Property Investors Claim a Tax Deduction for Stamp Duty?
An investment property typically does not qualify for a stamp duty tax deduction. This is because it is included in the cost base as an “acquisition cost” by the Australian Taxation Office (ATO). Fortunately, if you are a real estate investor, you might be able to deduct the stamp duty expense from your capital gains tax obligation when you sell the property.
How much is Stamp Duty?
The stamp duty amount will vary depending on where you live in Australia. The amount can also vary by:
- if you are owning/purchasing a home for the first time, or a foreign buyer
- type of property you are likely to buy, whether it’s a rental property or an investment property
Capital Gains Tax and Stamp Duty Liability
Stamp duty is not the sole tax that home buyers need to pay when buying a property. The CGT also comes into effect when a property is sold out. It is calculated by the difference between the selling cost and the purchase cost of the property, essentially a tax on the profit of the property that is sold. This purchase price includes upfront costs and legal fees that come when you purchase a house.
How to Claim Deductions on Investment Property?
Now, you have the answer to your question ‘Is stamp duty tax deductible’, right? The ATO is scrutinising tax returns and combing through paperwork with a fine-tooth comb in search of false claims. Make no false or misleading statements on your return as doing so is against the law and can result in substantial fines and other penalties.
Do not claim a deduction if you cannot support it. It is crucial to retain any pertinent invoices, receipts, bank statements, and evidence of rental listing adverts.
- Maintain a record of rental expenses and income for at least 5 years.
- These records can be in digital form or physical.
The blog shares information on who needs to pay stamp duty and how to claim deductions on investment property. If you want more information regarding this, you can get in touch with Home Star Homeloans.