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Mortgage Stamp Duty

Discussion in 'Accounting & Tax' started by Rayan, 25th Jan, 2016.

  1. Rayan

    Rayan Active Member

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    Need some expert help on this one.

    I was of the belief that mortgage stamp duty was abolished (in NSW at least) for owner occupied and investment property loans.

    Does this still apply if you borrow in a company name?

    The exemption strictly applies if the borrower(s) is a "natural person". However OSR website FAQ states that a company can be the mortgagor as long as the funds are advanced to a natural person.

    Any insight/ prior experience??
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Rayan

    Rayan Active Member

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    That's where it gets confusing. The OSR FAQ page states:

    " Can the mortgagor be a company for section 221B or 221C of the Duties Act 1997 to apply?
    Yes provided that advance is made to borrower/s who is/are natural person/s."

    Frequent questions | Office of State Revenue

    This would suggest to me that the exemption applies even when the company is a mortgagor, as long as the funds go into a personal bank account/advanced to a natural person.

    I have had conflicting replies from different banks, and different individuals in the OSR.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Best to look at the legislation.

    How does this apply to your situation? Is the owner of the property a company? And is the company letting you use the company property as security to borrow in your own name?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think you have read this wrong. Maybe you are confusing mortgagor with borrower?
     
  6. myotherac

    myotherac Member

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    I just bought and settled a property using a unit trust structure with corporate trustee. I as individual was the 'Borrower' on the loan documents and security was a property owned by a unit trust with corporate trustee. Loan was with St George Bank, which I understand are one of the few banks that allow this (ie. security not in borrowers name). I own all the units and have borrowed to purchase these. The structure was:

    Director of the trustee company:
    Joe Bloggs
    Borrower: Joe Bloggs
    Mortgagor / property owner: Example Pty Ltd As Trustee For The Example Unit Trust
    Guarantor: Example Pty Ltd As Trustee For The Example Unit Trust

    In this situtation, I am of the understanding that this would be exempt from mortgage stamp duty because the loan is for investment housing and the borrower is a natural person.

    If the loan is set up with the company as trustee for the trust as the borrower, then it wouldn't be exempt.

    Director of the trustee company: Joe Bloggs
    Borrower: Example Pty Ltd As Trustee For The Example Unit Trust
    Mortgagor / property owner: Example Pty Ltd As Trustee For The Example Unit Trust
    Guarantor: Joe Bloggs

    I've read that there also tax savings on the first structure. See Terryw's tips:

    Unit Trusts and the 2 methods of Borrowing

    As a side note: Terryw's last comment on that page applied to me:

    'You must check loan documentation very carefully as even when the loan is approved on the basis of the borrower being the individual I have had cases where the lender documents have come out incorrectly. This could be due to the staff in the document preparation team thinking it is a mistake and fixing the mistake by swapping the borrower and the guarantors around.'

    Someone at St George Bank took it upon themselves to change the borrower and guarantors around 10 days before settlement. Was nerve racking getting it changed around and involved going through credit.
     
    Last edited: 26th Jan, 2016
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes I think that would be exempt from duty myotherac.

    but where a company is borrowing and mortgaging the property there would not be an exemption. Having the loan money deposited in a personal account wouldn't change anything - and just complicate things with various legal issues.
     
  8. myotherac

    myotherac Member

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    Are there any Banks that would allow third party borrowing under a company? I.e.

    Director of the company: Joe Bloggs
    Borrower: Joe Bloggs
    Mortgagor / property owner: Example Pty Ltd
    Guarantor: Example Pty Ltd

    Joe Bloggs would be a shareholder and director.


    Might be a moot point because mortgage duty will be abolished in NSW on July 1, 2016.

    Abolished taxes and duties | Office of State Revenue
     
    Last edited: 26th Jan, 2016
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes I think so, but I have never done or attempted a loan like this.

    There are company law issues because a director has a duty to act in the best interests of the company, not to improperly use their position to gain an advantage for themselves etc, however this is not in the companies interest.
     
  10. myotherac

    myotherac Member

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    Getting back to the OP, Rayan, this company loan structure could be exempt from Mortgage duty. Individual is borrower. But best to seek your own legal advice.

    Could the OP be confusing company trustee in a trust structure with company? They are two totally different beasts.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    He mentions 'personal account' so I think it is probably a company borrower and mortgagor (perhaps as trustee) with the money being deposited into a personal savings account (dangerous for various reasons).
     
  12. myotherac

    myotherac Member

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    I guess in summary, for mortgage duty to be exempt in NSW:

    'Borrower' on loan document must be a natural person.

    'Mortgagor/property owner' can be a company.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And the funds must be used to purchase real property.
     
  14. myotherac

    myotherac Member

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    Terryw, you should update this page
    Unit Trusts and the 2 methods of Borrowing

    More advantages of borrowing as an individual rather than the trustee/trust being the borrower:
    1. Exemption from mortgage stamp duty

    2. Individual can get professional package benefits (at least for St George Advantage package) but trustee/trust as borrower cannot.

    3. Don't have to sign document waving your rights under National Consumer Credit Protection code
     
    Last edited: 26th Jan, 2016
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  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, good points and thanks myotherac.
     
  16. Rayan

    Rayan Active Member

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    Thank you so much for the clarification.

    The property owner is a company (as trustee) and the borrower was set up as the company also unfortunately because
    a) bank wouldn't lend with personal name as borrower
    b) my broker was not aware/didn't inform me that it would incur $3k in mortgage stamp duty.

    Trap for the unwary.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Stamp duty advice shouldn't be given by brokers, but it seems most of the broker software has automated calculations giving duty estimates. However they are unable to cover all the potential variations. I informed a major broker software supplier about this 2 years ago and their response was that it is too difficult to build into there systems. I suggested having a disclaimer warning the clients about it potentially applying but they still haven't done so.

    It would probably be disclosed in the letter of offer from the lender so you are being informed about it, just a bit late.
     
  18. kr11

    kr11 Well-Known Member

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    Hi Terry.

    If you refinance from one bank to another, do u have to pay mortgage stamp duty again for a second time for the original refinanced amount if bought under a company as trustee for a trust, given that for a natural person, it is exempt
    thanks
     
  19. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Loan refinances in NSW are not subject to Mortgage duty. However any additional advance is. There is a declaration form for refinances where the new / old loans are declared in the form of stat dec to access the exemption. The onus for checking + verification of this is managed by the lender who is the tax collector.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't forget the lenders often get it wrong. I have had clients not pay stamp duty where they were supposed to and others charged where there was no need.

    You may also be entitled to a refund later. e.g. an individual borrowing for a LOC with no property chosen yet. duty is payable, but could later be refunded if the borrowed money was used to acquire a property.
     
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