When buying a property, you will most likely have to pay stamp duty on the purchase. But is that the same as a land tax? How do the two differ?
The short answer is that stamp duty is a one-off sales tax paid at the time of purchase, whereas a land tax is an ongoing tax paid on land you own.
The two charges are similar, but different, and many people don’t realise just how much they can add to the price of property?
So how do stamp duty and land tax differ?
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Stamp duty
Stamp (or transfer) duty is a one-off tax levied by all Australian states and on property purchases, paid by the buyer.
The amount of stamp duty differs from state to state and can be based on the property purchase price, location and property purpose (business or residential). Some states also charge different rates on investment properties than on places of residence.
The end result is a hodgepodge of regulations that results in situations like the one experienced at the NSW/Victoria border, where stamp duty is $1000 less on one side of the Murray River in Albury, NSW, than it is on the other side of town in Wodonga, Victoria.
Regardless of where you are buying the property, the purchase price is a key factor in determining how much stamp duty you’ll pay.
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Similar to the tax system, the rate of stamp duty due progressively increases in brackets. For example, in Queensland, purchases up to $5000 attract no tax at all, similar to the tax-free threshold.
Purchases between $5000 and $75,000 are taxed at $1.50 per $100, those between $75,000 and $540,000 at $1050 plus $3.50 per $100 and so on; gradually increasing until an upper limit of $38,025 plus $5.75 per $100 for properties over $1 million.
With the average house price in Australia sitting at $752,507, it’s easy to see how you’ll typically pay tens of thousands in stamp duty when you purchase real estate.
Again, rates and brackets vary quite a bit between states so check with your state or territory for exactly what you’ll be up for.
Exemptions
There are a few circumstances in which you can be exempted from paying stamp duty and, again, these exemptions differ between the states.
For example, in Western Australia, transfers between spouses or de facto partners are exempt, while in Tasmania, those on the Age Pension may be eligible for a discount of up to 50 per cent if they are downsizing to a smaller residence.
Checking your eligibility for any state or territory exemption could potentially save you thousands.
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Land tax
Unlike stamp duty, land tax is a tax you must pay annually on any other residential property you own.
These tax rates are also set by state and territory governments, with the exception of the Northern Territory, which doesn’t charge a land tax.
In general, you don’t have to pay land tax on your principal place of residence, but for any other properties you may own.
Again, the rules differ depending on jurisdiction, for example, in the ACT land tax is not charged on commercial properties, but in Victoria it is.
Check with your state’s revenue office to find out what land tax may be applicable to you.
Exemptions
Like stamp duty, there are a number of exemptions and discounts available, depending on where you are purchasing the property.
In South Australia, land owned by not-for-profit organisations may be entitled to an exemption, while in Victoria land used for registered caravan parks also pay no land tax.
Again, you’ll need to check with your state’s revenue office to see if you’re eligible.
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