S is for Stamp Duty
Stamp duty is a levy imposed by the state government on transfers of property, it is a significant impost and is paid by the purchaser. As a rule of thumb, it will equate to around 5% of the purchase price. There are a few key concessions that enable purchasers to obtain a reduction in stamp duty, the primary one being if it will be your principal place of residence. Further, if it will be your principal place of residence and you are a first home buyer there is a further reduction in the duty payable. In essence, if you are buying your first home and it will be your principal place of residence, you will obtain a reduction of around 40% of the duty that would normally be payable.
The benefits referred to above are based on a sliding scale (that is, the higher the purchase price, the lesser the percentage reduction) and cut out if the purchase price exceeds a threshold figure, which is currently $550,000, for the principal place of residence benefit and $600,000 for the first home owner benefit.
If you are purchasing a property for investment purposes the above reductions in duty are inapplicable so a purchase in this category will incur the full rate of stamp duty, unless there is some other exemption that applies to the transaction.
The state government now also imposes an additional amount of duty on purchases made by non Australian residents (currently an additional 7.0 % of the purchase price). Consequently, every purchaser of property in Victoria, must complete and sign what is known as a Purchaser Statement verifying that the purchaser is an Australian resident, otherwise this additional levy will be imposed.
Tips for purchasers: (1) be aware of the thresholds referred to above. Agreeing to buy a property for $549,000 will get you a benefit of $3,100, whereas agreeing to pay $551,000, will result in no benefit (in relation to principal place of residence); In relation to eligibility for the first home owner reduction, a purchase price of $599,000 will enable you to qualify but a purchase price of $601,000 will put you above the threshold; (2) understand how the first home owner benefit works. This benefit will not apply if you have been registered on a title anywhere in Australia or if a person you are purchasing the property with (eg a spouse, partner) has been registered on a title anywhere in Australia. The key criteria is being registered on title not necessarily having purchased before. A person could, for example, become registered on title via an inheritance under a will; (3) ensure that your solicitor is aware of your status as a purchaser and that the required forms are completed and signed prior to settlement. This will not only result in obtaining the maximum benefit but will also lead to a smooth settlement process. If your lender has deducted the lower amount of duty from your loan proceeds and the requisite forms are not provided at settlement, the settlement will not proceed on time; (4) if you are acquiring property in association with, or in a corporate structure containing, a foreign entity or entities, you MUST consult a solicitor before entering into the proposed transaction as the determination of whether there has been a foreign acquisition is complex.
T is for Transfer of Land
The Transfer of Land (“the Transfer”) is the document that effects the change in ownership from the seller to the purchaser and is the document upon which stamp duty is levied. Once stamp duty has been paid, the Transfer is lodged at the Land Titles Office whereupon the new ownership details are registered on title, along with any other applicable interests (such as the lender’s mortgage).
The nature of the ownership is also recorded on the title. If an individual has purchased the property the nature of that ownership will, generally speaking, be as a sole proprietor. If the purchase has been made by, for example, a husband and wife they are most likely to be registered as joint tenants. If the property has been acquired as an investment by, say two or more investors it is most likely that they will be registered as tenants in common. These are simply examples of some of the types of ownership that are available. The key issue is making sure that the Transfer is drafted appropriately so that the nature of ownership sought is, in fact, obtained upon registration.
Tips for purchasers: (1) before purchasing, consider the most appropriate ownership structure for the transaction and, where needed, obtain appropriate advice from your solicitor and your financial and tax advisors. A husband and wife or domestic partners may benefit from having an investment property registered as tenants in common (rather than as joint tenants) in order to split the ownership percentages so that the greater negative gearing benefits flow to the higher income earner. It is quite common, in this scenario, for a split of 99% and 1% for this reason (bear in mind though, that the capital gains tax outcome might suggest that the split is reversed); (2) succession issues need to be considered. A joint tenancy results in the automatic passing of the ownership interest from a deceased to the other joint tenant (ie the ownership is not passed through the deceased’s will), whereas the interest of a tenant in common can be dealt with separately to the other tenants in common and can be devolved via a will; (3) when asked to sign the Transfer do not just sign it, check that your solicitor has drafted it correctly and that it meets your needs.
U is for Unconditional
Once the contract of sale becomes unconditional both parties are obligated to complete the transaction. A failure, of either party, to complete will expose the defaulting party to losses and damages which arise from that default (subject, of course, to any special conditions in the contract which limit the types of losses that may be claimed, such special conditions will nearly always be in favour of the seller). In general terms, a purchaser is in a much more precarious position than the seller when it comes to these defaults. The Sale of Land Act (Vic) provides that the purchaser will forfeit its deposit to the seller, even if the seller can subsequently re sell the property for a higher price (for example, in a rising market). The defaulting purchaser will also be exposed to other additional costs such as fresh agents commissions and other costs associated with a re sale.
Tips for purchasers: NEVER allow a contract to become unconditional unless you are able to complete. ALWAYS be aware of the key dates by which you have to satisfy special conditions within the contract and don’t simply rely on your legal representative to monitor them for you-a competent solicitor will but you do not have a defence if your legal representative fails to so monitor and you end up with an unconditional obligation to settle when your loan has not yet been approved (and ultimately isn’t approved). Subject to the wording of the special conditions, other benefits that you were entitled to, will also be lost. For example, the right to withdraw if your building and/or pest inspection reveal structural or infestation issues.