Buying your first home is expensive, but the good news is there are some perks!

This article assumes you are buying in Victoria after July 1st 2017*.

When buying a property, usually you’ll have to pay something called “stamp duty”. Well actually, it used to be called stamp duty, but recently they’ve started calling it “land transfer duty”. Most people still refer to it as stamp duty though.

What is stamp duty?

Stamp duty is a tax charged by the state government on the sale of property. 

It was designed to cover the cost of the legal documents for the transaction. Up until the early 2000s, a physical stamp still had to be attached to or impressed upon the document to indicate that the duty had been paid, hence the term “stamp duty”.

Stamp duty is one of the biggest sources of state government tax revenue and is used to invest in projects ranging from infrastructure to healthcare. There is some controversy about the merits of this tax, but that’s a topic for a different article!

How much stamp duty you need to pay will depend on the value of your property, whether you’re going to live in it or rent it out, whether you’re a foreign purchaser, and whether you’re eligible for any exemptions or concessions.

Help for first home buyers can come in the form of a stamp duty exemption, concession, or monetary grant.

Stamp duty exemption

If you are a first home buyer and you buy a home for up to and including $600,000, you won’t need to pay any stamp duty!

It doesn’t matter whether you buy a new or established home.

Stamp duty concession

If you are a first home buyer and you buy a home between $600,001 to $750,000, you’ll get a discount on the stamp duty.

The discount applies on a sliding scale, so the closer you are to $600,001, the greater the reduction.

It doesn’t matter whether you buy a new or established home.

You can calculate exactly how much stamp duty you’ll have to pay at different prices using the online calculator on the State Revenue Office (SRO) website. 

Buy for over $750,000, and unfortunately, you’ll have to pay the full amount of stamp duty.

First Home Owner Grant (FHOG)

If you buy a new home, or buy land and build a new home, you can receive a monetary grant of:

• $10,000 if you buy in metropolitan Melbourne,

• or $20,000 if you buy in regional Victoria.

What counts as regional Victoria? You’ll have to check the SRO website for specifics.

Eligibility

The eligibility criteria also apply to your spouse or partner, even if he or she is not going to be named on the contract or the property’s title. You must include their details on the application form regardless. 

To be eligible for any help as a first home buyer: 

• The dutiable value of your property must be $750,000 or less (see below)

• You both must be at least 18 years old*

• You can’t buy in the name of a company or trust

• Neither of you can have received the FHOG before

• You can’t have owned a property in Australia before* (either jointly or separately)

• At least one of you must be an Australian citizen or permanent resident*

• You must satisfy the residency requirement (see below)

The SRO defines your partner as someone who you are in a registered domestic relationship with, or someone who you are living with as a couple on a genuine domestic basis irrespective of gender. Your spouse is someone to whom you are legally married.

Residency requirement

To claim any grant or stamp duty concessions, after you buy, at least one person named on the contract must live in the property for a continuous period of 12 months, starting within 12 months of settlement. It’s not necessary, however, for the same purchaser to occupy the home for the entire 12 months.

Will the SRO know if you don’t do this? Yes, there’s a strong chance they will find out. They will initially ask you to provide your own proof, as well as gather their own information via public tip-offs and data-matching with bills, connected services and other sources.

If they find out you’ve done the wrong thing, you will have to pay back any grant received, pay the difference in stamp duty owing, plus pay compensation and costs, and you may be prosecuted and convicted. Since 2010, 83 applicants have been successfully prosecuted.

What’s dutiable value?

The dutiable value is usually the contract price.

However, if you buy off-the-plan, the dutiable value is the contract price less the costs of construction works occurring on or after the contract date. 

This amount is calculated using information provided by, and a method chosen by, the vendor.

So basically, the dutiable value for the off-the-plan purchases is the value of the property at the time of purchase – meaning the earlier in the process you buy, the less your dutiable value will be. 

For example, if you buy a block of land before any construction has started, you will only pay stamp duty on the land value. If you buy off-the-plan when construction is 90% completed, you’ll pay stamp duty on the land value plus 90% of the build costs.

If you buy an established property, the dutiable value is the price you paid or market value, whichever is greater.

Unrelated parties dealing with each other independently are commonly described as trading at arms-length. In these circumstances, it is assumed that the amount paid for a dutiable transaction is the market value.

If your transaction involves related parties, such as relatives or parties acting together in some way, you need to declare the market value of the property, supported by an independent valuation from a qualified valuer.

For example, if you buy a property from your parents for a discounted rate of $600,000, you won’t automatically avoid paying stamp duty. You will need to get an independent valuation and pay stamp duty based on the market value instead of the contract price.

What’s considered a new home?

For the purposes of the FHOG, a new home includes a newly built home, a house and land package, or an existing property being sold for the first time as a residence.

It must also be less than 5 years old.

What does that last one mean? “Sold for the first time as a residence” means that the seller must be the same person or entity who obtained the Certificate of Occupancy. Usually this means that the current owner is the builder who built the property and kept it to live in or rent out.

For example, if you are a buying an existing property that is less than 5 years old, it might be worth asking some questions about the seller and the history, because you may still be able to claim the grant – it doesn’t matter whether the home has been occupied or not!

A lot of agents and sellers still don’t understand this properly, so please do your own research and don’t take their word for it!

If you’re buying vacant land, you must build and move into your home within 12 months of the settlement on your land contract to be eligible for any duty exemption or concessions.

When and how do you apply for the first home buyer grant, exemption or concession?

Once you’ve bought, your conveyancer or solicitor will usually apply for the exemption or concession as part of the electronic conveyancing process. 

In the majority of cases, the bank or lender that is providing your finance will lodge the FHOG application on your behalf, as this will result in an earlier payment; however, you can also lodge the application yourself.

When does the first home owners grant get paid?

The date the grant is paid depends on how you are buying. Assuming you applied through your lender:

• New or off-the-plan home: The grant will be paid at date of settlement

• Contract to build: The grant will be paid at date of the first progressive payment

• Owner builder: The grant will be paid on receipt of the Certificate of Occupancy

You may choose how the first home owners' grant is paid, but generally it is paid directly to the lender to reduce the deposit required.

When do you have to pay stamp duty?

If you’re required to pay any stamp duty, it’s an upfront cost and payable at settlement. Your conveyancer or solicitor will usually sort out the payment on your behalf.

If you do not pay within 30 days of settlement, penalties and interest may start to accrue.

Can you borrow money from the bank to cover the stamp duty cost?

Not specifically; however, the way this can be accommodated in practice is that you use some of the money saved for your deposit to pay the stamp duty, and increase your loan amount to compensate.

Stamp duty fees can also be covered through the use of a Guarantor Loan. 

What if you are a foreign purchaser?

A foreign purchaser can be eligible for the first home buyer duty exemption, concession or grant, if they buy the property with an eligible Australian citizen or permanent resident*.

This should not attract any foreign purchaser additional duty, provided the couple can meet the residency requirement.

Please seek additional clarification and advice if this is you though, as it can be more complicated depending on your circumstances.

---

* The rules were different prior to July 1st 2017, and stamp duty varies by state.

* All applicants must be at least 18 at settlement or completion of construction (although there is discretion with this age requirement).

* Anyone holding a permanent visa under s30(1) of the Migration Act 1958 is considered a permanent resident of Australia. New Zealanders holding a special category visa under s32 of the Migration Act 1958 are also eligible for the FHOG but must be physically in Australia at the time of settlement.

* You may still be eligible for the FHOG if you or your spouse/partner purchased property on or after 1 July 2000 and did not live there for a continuous period of six months or more.