If you’re a property owner or investor, you know that stamp duty is a significantly large expense when purchasing a property. As Australia’s leading quantity surveyor and tax depreciation schedule provider, we’re often asked “is stamp duty is tax deductible?” – a fair question, given that it is a form of tax.
Stamp Duty is charged by State and Territory Governments for certain documents and transactions, including the transfer of a property. The big question is, is it tax deductible or do you always need to pay stamp duty?
Here at Property Returns, we help Australian property investors to pay less tax and maximise their tax return with expert tax depreciation schedules. Qualified and experienced quantity surveyors, we specialise in providing reliable, professional and specialist advice on the current ATO tax rulings relating to depreciation of property assets. As such, we’re more than qualified to discuss the ins and outs of stamp duty and whether or not investors have the opportunity to claim the transfer tax.
If you’d like to learn more about our expert depreciation schedule services for commercial and residential property, talk to a Property Returns quantity surveyor today on 1300 829 2211. Otherwise, read on to learn the intricacies of whether or not stamp duty is deductible for investors in Australia.
What Is Stamp Duty?
Before we get on to whether or not is the tax of stamp duty deductible, let’s start with the basics.
Stamp duty is also commonly known as transfer duty and refers to a government tax on certain transactions. Transfer duty needs to be paid during the purchase of a motor vehicle, insurance policy or real estate via stamp duty forms. In the case of real estate and the investment of a property, it is essentially the land transfer tax for your transaction. Furthermore, stamp duty positively affects public funding and social equality.
Stamp duty is the amount of tax you’ll pay on any property purchase. All Australian territories and states levy the duty on property purchases. The costs you need to pay on stamp duty are heavily dependent on several factors, including the location, the property purchase price and whether or not you already own property.
Each state or territory government in Australia have their own unique stamp duty calculation methods and stamp duty forms. As such, the amount charged for a property sold in one state will be completely different from a similarly priced property in a different state. The timeframe of which the tax for the transaction of land transfer is due and payable also varies across Australia’s different states and territories. The question of tax deduction and stamp duty exemptions may just depend on where you’re located in Australia.
Is Stamp Duty Tax Deductible?
The Australian Capital Territory is the only state or territory in Australia in which the stamp duty charged on a mortgage may be immediately tax deductible.
In the ACT, paying stamp duty on the transfer of a property under the ACT’s leasehold system is generally deductible. When acquiring a property in the ACT, this is commonly completed under a 99-year crown lease. These stamp duty concessions mean that preparation and registration costs like stamp duty incurring on the lease are deductible provided that the property is used or will be used to produce taxable income in the future.
Unfortunately, unless your property is located in the ACT, you can’t claim the tax for the transaction of land transfer right away. Whether or not is stamp duty deductible in income tax will depend on whether you live in the ACT. However, as a property investor in any other state in Australia, you don’t have to consider stamp duty as a complete loss – you may be able to claim the funds at a later date.
Is Stamp Duty an Expense?
Stamp duty is one of the largest rental investment property expenses involved in purchasing an investment property. However, the duty is not necessarily an expense that can be immediately claimed on tax upon purchasing a property. Stamp duty, rather, falls under a ‘capital’ expense, one that you can offset the cost of against your Capital Gains Tax liability when you decide to sell the property. If you’re here to learn how to claim the duty, you may have to shift your thinking into when you can recover the charged the tax for the transaction of land transfer.
Is Stamp Duty Tax Deductible for an Investment Property?
As a property investor, you will be able to claim various rental property expenses as tax deductions. Is the tax of stamp duty deductible for an investment property? Unfortunately, no (unless you’re in the ACT). It is typically not one of these deductions that you will be able to claim off the bat.
There are, however, a number of rental property purchase expenses that you may be able to claim. The ATO currently allows investors to deduct certain “borrowing expenses” when purchasing an investment property. These borrowing costs include:
- The cost of preparing and filing your mortgage documents
- Loan establishment fees from bank or lender
- Fees for the required valuation for approval of the loan
- Lenders mortgage insurance
- Title search fees charged by the lender
If the property is being purchased as an investment property, there are even more deductions that may be applicable. For example, property investors may be able to claim the interest charged on loan for the investment property against yearly income, along with management and maintenance costs. These may include:
- The cost of advertising your property for lease and the agent’s fees
- Council rates, water charges and land tax expenses
- Body corporate fees
- Insurance costs
- The costs of cleaning, mowing, gardening and even pest control
Furthermore, if you make improvements to your investment, these can be claimed as Capital Works Deductions and can be claimed over a number of years. As Australia’s leading quantity surveyor firm, we can help Australian investors to get the most out of their tax deductions and provide leading tax advice for all types of properties. If you’d like to learn more about what you can claim and what is deductible from your tax for an investment property, get in touch with us at Property Returns today.
Claiming Stamp Duty on Investment Property
Generally speaking, you cannot claim an income tax deduction for stamp duty on your investment property when you make the purchase. However, as an investor, you may be able to offset the cost of the duty against your Capital Gains Tax liability down the line.
Investors can recover stamp duty legal fees. The duty on the property transfer, along with conveyancing costs, may be claimed against Capital Gains Tax (CGT). CGT refers to a tax that you are required to pay on the profit made from the sale of your investment property. Property Returns have recently written a comprehensive guide to CGT – for more on CGT and how to reduce it, read our article here.
Stamp Duty Capital Gains
In order to understand how to claim stamp duty, it’s important to consider the process of ‘claiming’ as recovering the costs by deducting stamp duty capital gains. As these stamp duty expenses form part of your investment property’s cost base, it can reduce the amount of CGT that you pay when you choose to sell your property.
Here’s a real-world example of stamp duty capital gains recovery to give you an outline of how this may work for a property investor. It starts with calculating capital gains tax:
Sam purchased a property in Sydney for $500,000 back in 2013. This was not his first property purchase, and he was charged approximately $18,000 for stamp duty on the transfer of the investment property. The conveyancing costs came to approximately $3,000.
Sam was ready to sell the investment property in 2021, and it was sold for $800,000. The difference between the purchase price and the selling price was $300,000. In line with Capital Gains Tax protocol, Sam could deduct the initial stamp duty and conveyancing costs to reduce his total capital gain:
$300,000 – ($18,000 + $3,000) = $279,000.
As a result, Sam only has to pay capital gains tax (CGT) on his capital gain of $279,000.
If you’re still unsure of whether we’ve fully covered tax deduction of stamp duty, the answer is, unfortunately (unless you’re located in the ACT), stamp duty is not something that you can claim when you initially purchase a property. However, stamp duty is an expense that can be recovered when you decide to sell the property through the means of reducing your capital gains tax.
When purchasing a new property, our expert advice is to do your research when it comes to all purchasing costs, the pay of stamp duty, to avoid any expensive surprises. It’s important to plan your investment strategy beyond the purchase price of a property to get a comprehensive view of what’s involved in the acquisition of an investment rental property.
Here at Property Returns, we help property investors to maximise their tax return on their property. We are more than just a tax office. We help Australians to save thousands each year with ATO approved tax depreciation schedules, which allow investors to claim thousands of dollars in tax deductions for each of their investment properties. If you are looking for your Melbourne Tax Depreciation Schedule, seek professional advice with our expert quantity surveyors to analyse your full history of assets to make the correct technical calculations and capital expenses so that you can maximise your tax benefits. Enquire today via the form or give us a call on 1300 829 221 to learn more.