Save Stamp Duty When Investing in Off-The-Plan Property, and Increase Your Profit

Wherever you buy property in Australia, you’ll be required to pay stamp duty based on the value of the property that you purchase. The amount you’ll have to pay depends on the value of the property to be purchased and the state in which you are buying. Some states, such as Victoria, offer certain concessions on stamp duty. One of these is for anyone buying off-the-plan property. This could mean tens of thousands of dollars in savings for the investor.

What is stamp duty?

Stamp duty is one of those necessary evils, payable by all property buyers in Victoria even if the property will be your principal place of residence. If the property is valued at over $130,000 you’ll pay duty pf $2,870 plus 5% of the value over $130,000. If you’re a property investor, the amount you’ll have to pay in stamp duty is even more: $2,870 plus 6% of the value over $130,000. For a $600,000 property, that’s a massive $31,070.

Even worse for the buyer, law stipulates that the stamp duty has to be paid within 30 days of the settlement date. If you can’t pay the stamp duty by the date stipulated, the state can fine you up to 75% of the stamp duty amount; and then add interest, too!

As you can imagine, stamp duty is a real thorn in the side of the property investor. The amount of tax payable can’t be reclaimed, and bites a big chunk out of an investor’s potential profit margin. For investors who buy off-the-plan this tax hit is a lot less damaging to profit margins, because off-the-plan property purchases are exempted almost all of the stamp duty that would otherwise have to be found, financed, and paid.

The taxman is on the side of off-the-plan property investors

There are a number of tax concessions available to property investors. When totalled, these could enable an investor to buy an investment property for as little as the price of a cup of coffee each week. Even so, the Victorian taxman wants to give the investor even more, and does so by making a concession in the stamp duty payable on all off-the-plan property purchases.

This concession applies to the purchase of building packages and refurbished lots as well as land, and means that the investor effectively only pays duty on the improved value of the land and any costs that can’t be deducted. (You can read all the details on the website of Victoria’s State Revenue Office.)

That’s not the only stamp duty rule that benefits property investors buying off-the-plan in Victoria. The value of the property is set when contracts are first exchanged, but isn’t payable until settlement takes place. Before the property begins construction, the value of the property is only its land value: the stamp duty payable is therefore hugely reduced!

How much can you save?

You can use this stamp duty calculator to work out how much stamp duty you would have to pay. As a guide, if you buy a $400,000 apartment you would have to pay $19,070 in stamp duty. But if you purchase off-the-plan property before construction has been started, the amount payable would only be in the region of $1,200 and $2,400.

That’s a saving of more than $17,000 only available to early stage off-the-plan property investors; and $17,000 extra profit in your pocket.