December 28, 2010 5min read
Buying a new home isn’t just a transfer of money between you and the or the seller – the government is also entitled to a share. Stamp duty is a fee payable to the State Revenue Office on a range of transactions such as transfer of motor vehicles, livestock sales, land and more.
Essentially when referring to land you need to pay Transfer Stamp Duty. This is calculated on the value of the land and any capital improvements on that land, like building, as at the day you sign the contract of sale.
The good news is when you’re building a new home, you only need to pay stamp duty on the land component if you sign the contract before construction starts. This is different to purchasing an established home, which requires you to pay stamp duty on the entire purchase price, i.e. land and house.
Victoria’s new Premier, Ted Baillieu, has committed to reducing stamp duty by 50% over the next four years to address housing affordability for first home buyers. And he has already come through with the goods with an initial reduction of 20% announced on 21 November.
This is great news, especially for those building their new home.
Take for example the following scenario.
Homer and Marge purchase an established home and land for $350,000. This means they will be liable to pay $13,870 in Transfer Stamp Duty plus $983 for the Transfer registration fee. If they are purchasing the home as an investment, the Transfer Stamp Duty increases to $16,070, as there are stamp duty discounts when the property is purchased for owner-occupation.
Fred and Wilma purchase a block of land for $180,000 and construct a new home for $170,000. The total value being the same as the established home – $350,000. However, they will only be required to pay $5,370 in Transfer Stamp Duty (plus $565 for the Transfer registration fee). If for investment purposes, the Transfer Stamp Duty increases to $5,870.