Stamp Duty Twice?

Discussion in 'Accounting & Tax' started by JMA, 13th Jun, 2019.

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  1. JMA

    JMA Member

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    I'm considering the purchase of a property in poor shape that will likely need to be demolished and rebuilt. Would this require the payment of stamp duty twice? Once when the land and existing home is purchased and a second time for the new home (without the land)? Does it matter if I live in the existing home for a few months while plans for the new home are completed?
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

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    No stamp duty on a new home build (in wa at least),
     
  3. JMA

    JMA Member

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    I'm in Qld. I thought that stamp duty was paid on the combined price of home and land, but rates are based only on land price?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Duty is levied on dutiable transactions such as a transfer of land. Building ain't a dutiable transaction
     
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  5. JMA

    JMA Member

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    I'm still a bit confused. Every stamp duty / transfer tax calculator I see on-line as well as the descriptions of the tax rate use the value of the entire property and not the separate value of the land. Are you saying that if I build after demolishing an existing home, I would pay stamp duty on the original purchase of the home that would be demolished, but no further tax on the new home after re-building ? Is there anyway to avoid the stamp duty on the original home purchase given that it will be demolished?
     
  6. Propertunity

    Propertunity Well-Known Member

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    You pay stamps on your buy price of the old house + land combined. If you then demo the house and build a new one there are no further stamps to pay.

    Council rates are calculated on the land value only. This is entirely a separate issue to stamps.

    No.
     
  7. JMA

    JMA Member

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    So if the old home is demolished *before* my purchase, I won't pay stamp duty at all on the building portion of the initial/old home that existed prior to the land purchase? ...would I still not pay stamp duty on the new build and only pay stamp duty on the land value?
     
  8. Trainee

    Trainee Well-Known Member

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    The educational method by the experts is... educational.
     
  9. Ross Forrester

    Ross Forrester Well-Known Member

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    House + land = stamp duty.

    House build on land you own = no stamp duty.
     
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  10. wylie

    wylie Moderator Staff Member

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    Are you wanting the vendor to knock down their house and then reduce the price and hope you go ahead with the purchase? That's not going to happen.

    You are buying an old house and land? You pay stamp duty on the contract price and then you can do what you want with the old house.
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Go to the source:
    DUTIES ACT 2001
     
  12. JMA

    JMA Member

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    If the vendor knocks down the land prior to my purchase, it would presumably *increase* the value of the land by the price for the demolition - I'm told around 20k - since most anyone would have to do the same. I've got off the phone with Qld and they told me that the above would reduce the transfer duty (stamp duty) since you would only pay that on the land value rather than the land+building value, but this would be difficult if not impossible to negotiate with the seller. As near as I can tell, the re-build doesn't incur transfer/stamp duty but will incur 10% GST.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    there is no duty on building
    there is duty on the transfer of land based on the value, this might include the value of construction if you are entering a contract to purchase land and a building.
    demolition of the house before the contract may make the value decrease, but demolition has tax consequences for the vendor, such as the loss of the main residence exemption, and GST.
     
  14. wylie

    wylie Moderator Staff Member

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    On $900k duty is $26,350 and on $880k it is $25,450 (assuming you will be an owner occupier).

    On $700k it is $17,350 and $680k it is $16,450.

    As a vendor, there is no way I'd take on the $20k task of knocking down a house in the hope I'd recoup that $20k from a potential purchaser. Your idea of "property in poor shape that will likely need to be demolished" might not match the next person's opinion.

    I'd certainly not spend $20k to knock down any habitable property to save my purchaser $1k.

    I'd consider doing that if it got me an extra $30k as a vendor.

    I think you should forget these tweaks and look at the bigger picture. Not trying to have a go, but you need to put yourself in the vendor's shoes. Would you do that?
     
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  15. Trainee

    Trainee Well-Known Member

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    Jma can you describe what you think stamp duty, land tax, council rates and gst are in your own words? When are each applied?
     
  16. JMA

    JMA Member

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    Thanks Terry and Wylie for the feedback. Wylie's point is well taken that the amount of duty saved by demolishing before purchase isn't enough to worry about especially given the fact that the entire point of demolishing is that the house value isn't much to begin with. ...and yes, it's definitely clear that the "need to demolish" doesn't match everyone's opinion since the owners decided to do some "fixes" on the existing home for the sale. As far as the question about definitions, I guess I'm just too ill-informed to answer that one. Until now, I figured that stamp duty was just the price for a postage stamp at the post office. :)
     
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  17. Propertunity

    Propertunity Well-Known Member

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    Also bear in mind that if you are needing to finance this purchase:
    1. Lending on vacant land may require a higher deposit to be paid by you
    2. If you buy an old house + land, the bank valuation may be lower and / or the lender may not want to finance this property at all if they deem the house as un-liveable
    3. If the house is live-able is the rent from the property taken into account as necessary for your serviceability calcs for you to qualify for a loan
    4. If you buy the house + land and a lender has a mortgage against the property, your loan contract conditions will require you to advise the lender that you are wanting to demolish the house & rebuild
     
  18. JMA

    JMA Member

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    Thanks Alan. ...have already discussed in detail with my bank and since the home is livable, they are fine with the finance - they said the cosmetics won't really matter to them as long as I'm not purchasing for more than the valuation. I'll likely move in for a few months while building plans and permits are settled and then get temporary housing during a new build - so there won't be rent coming in, but I won't have my existing housing costs either. The bank said that I would have to notify them before demolition, but altering the loan will be routine given the specific situation.
     
  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I think you're on the right track now. There is probably very little value in the existing house and you are probably paying around land value so there is probably only a very small percentage of the purchase stamp duty for the house component.

    The stamp duty is on the transaction price - it's not divided into house and land components so it will simply be based on the price that you manage to negotiate the contract to. There is no point asking for anything to be demolished as the contract price will still be the same.
     
  20. Christina46

    Christina46 Well-Known Member

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    @JMA - just be aware that if you are claiming a transfer duty concession because you will be living in the house initially, if you knock it down or hand the site over to a builder within the first 12 months you may need to repay the concession.
     
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