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 stamp duty 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 stamp duty tax deductible?
Here at Property Returns, we help Australian property investors to pay less tax and maximise their returns 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 property investors have the opportunity to claim the transfer tax.
If you’d like to learn more about our expert depreciation schedule services, talk to a Property Returns quantity surveyor today on 1300 829 221. Otherwise, read on to learn the intricacies of whether or not stamp duty is deductible for property investors in Australia.
What Is Stamp Duty?
Before we get on to whether or not is stamp duty tax 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. Stamp duty needs to be paid during the purchase of a motor vehicle, insurance policy or real estate. In the case of real estate and the investment of a property, stamp duty is essentially the tax for the transaction of land transfer.
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 stamp duty costs are heavily dependent on several factors, including the location, the property purchase price and whether or not you already own property.
Each state and territory in Australia have their own unique stamp duty calculation methods. As such, the amount of stamp duty 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 stamp duty is due and payable also varies across Australia’s different states and territories. The question of “is stamp duty tax deductible?” may just depend on where you’re located in Australia.
Is Stamp Duty Tax Deductible?
So, is stamp duty deductible on income tax? There is only one state or territory in Australia in which the stamp duty charged on a mortgage may be tax deductible.
In the ACT, 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. This means 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 income in the future.
Unfortunately, unless your property is located in the ACT, you can’t claim stamp duty 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 expenses involved in purchasing an investment property. However, stamp 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 stamp duty, you may have to shift your thinking into when you can recover the charged stamp duty.
Is Stamp Duty Tax Deductible for an Investment Property?
As a property investor, you will be able to claim various expenses associated with your investment property as tax deductions. Is stamp duty tax deductible for an investment property? Unfortunately, no (unless you’re in the ACT). Stamp duty is typically not one of these tax deductions that you will be able to claim off the bat.
There are, however, a number of property purchase expenses that you may be able to claim. The ATO currently allows property investors to deduct certain “borrowing expenses” when purchasing an investment property. These 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 tax 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 dews
- Insurance costs
- The costs of cleaning, mowing, gardening and even pest control
Furthermore, if you make improvements to your investment property, 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 property 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 tax deductible from 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 a property investor, you may be able to offset the cost of stamp duty against your Capital Gains Tax liability down the line.
Property investors can recover stamp duty fees. Stamp 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:
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 “Is Stamp Duty Tax Deductible for an Investment Property?”, 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, such as stamp duty, to avoid any expensive surprises. It’s important to go beyond the purchase price of a property to get a comprehensive view of what’s involved in the acquisition of an investment property.
Here at Property Returns, we help property investors to maximise their returns on their property. 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. Consult 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.