Stamp Duty Sting for Off-The-Plan Investors

Posted 19-12-2019
Written by admin 101
Category Real Estate

Buying off the plan carries with it many potential risks and pitfalls for the unsuspecting real estate investor.

When buying real estate off the plan there is often significant time between entering into a contract and settlement actually occurring.

So much can change in terms of market conditions, lending requirements and the purchaser’s own personal financial circumstances in that time.

One significant financial hurdle which is often not factored in is payment of stamp duty on off-the-plan contracts. Stamp duty typically is paid on settlement, however the reality is that stamp duty becomes payable as soon as three months after the date of exchange.

Stamp duty paid after this period can begin accruing interest.

For off-the-plan contracts stamp duty can be deferred by purchasers who will be occupying the property for a continuous period of six months within 12 months of settlement, meaning that in effect payment of stamp duty may be deferred by up to 15 months. However, it is important to note that since 1 July 2017 this capacity to delay the payment of stamp duty has not been available for investors.

Investors must pay stamp duty three months after exchange or incur interest. This may cause significant financial strain on a purchaser as they often rely on their loan to be able to pay the stamp duty. Unfortunately, the purchaser will not be able to access their loan until settlement of the property.

Interest charged by Revenue NSW for overdue stamp duty can be significant as outlined in the following example:

A contract for a new off-the-plan unit for $700,000 was exchanged on 1 July 2019. The purchaser was an investor who will not occupy the unit following settlement. The stamp duty payable on the contract price was $26,932 and could have been paid anytime up to 1 October 2019 without interest, being three months after exchange. However, the purchaser opted to pay stamp duty at settlement because they are relying on their loan. Assuming the development takes a full three years to be registered, and settlement is July 2022, the interest could be as much as $6518.

Failure to pay stamp duty on time could become a significant hidden cost down the track. Make sure you discuss payment of stamp duty with your Solicitor or Licensed Conveyancer at the time of contracts being exchanged to avoid any unnecessary extra costs.

If you have a similar experience or concern, and have a question, please  contact us. We'll be able to help you via a quick phone call, or ask us a question via email.