stamp duty is a large expense that can eat into that deposit that has taken you years to save. Properties are already expensive, and the barriers to entry can be huge -  stamp duty taxes are another consideration that could put that dream home out of your reach.

What is stamp duty?
Stamp duty, also known as ‘transfer duty’ in Tasmania or just ‘duty’ in Western Australia, is a state government tax paid on the purchase of real estate property.
 
How much will stamp duty cost?
As a rule of thumb, buyers should budget for stamp duty to cost around 4% of the purchase price of a property or around $16,000 for a property worth $400,000. Just like the high buy-in minimum at a high stakes poker game or for hedge fund investors, deep pockets are required to buy into the Australian property market. Stamp duty only makes this barrier higher. 
 
When is stamp duty payable?
Stamp duty is most commonly paid upfront on settlement of a property. Payment requirements differ from state to state.
 
Does stamp duty come out of my cash deposit?
Yes, stamp duty is an upfront cost which is paid in addition to a deposit on a property. As such, buyers have to save an extra 20% for their deposit after factoring in the effects of stamp duty. 
 
How do I calculate my stamp duty?
A quick way to calculate the likely stamp duty cost is to use a stamp duty calculator. Just enter the expected purchase price of the property in your state to get a projection of stamp duty costs.
 
Can I add stamp duty onto the balance of my loan?
No; however, the way this can be accommodated in practice is that stamp duty will come out of your cash deposit while the loan amount will increase to compensate. As an industry standard, borrowers require at least a deposit of 10% to add stamp duty and a Lenders Mortgage Insurance (LMI) fee onto the principal of the loan.
 
It is worth budgeting for at least $3,500 in additional buying costs to pay for conveyancing, a building inspection, valuation fees from both your bank and an independent valuer, and establishment and settlement fees for your home loan.
 
first home buyers exemptions:
  • ACT and Queensland are both stamp duty free for first home buyers.
  • For new constructions, NSW is stamp duty free for purchase prices under $600,000 while in Tasmania, stamp duty is paid only on the land and not on the building component.
 
Stamp duty for investors explained
As a quick guide for property investors, below are stamp duty charges for a $400,000 investment property in each state and territory. Victoria is the most expensive place for stamp duty, while ACT, NSW and QLD are all fairly equal as the cheapest for existing dwelling investment purchases.
 
NSW wins the prize for the cheapest stamp duty for buying new properties (due to the new property grant available for investors), followed closely by SA (which also has a new property grant available for investors).
 
Stamp duty payable around the country for a $400,000 investment property (non-first home buyers)
 

State

stamp duty*

new property grant

ACT

$13,623

nil

NSW

$13,796

$5,000

NT

$16,732

nil

QLD

$13,363

nil

SA

$19,204

$8,500

TAS

$14,309

nil

VIC

$20,243

nil

WA

$15,305

nil

 

*Including mortgage registration fee and transfer fee
 
Deposit levels required for investors
Investors need to be realistic about how stamp duty will affect their savings levels required to purchase their next investment property. Below are three investors who bought a $400,000 investment property in NSW:
 
Investor buys in NSW
 

Brad

Fran

Jenny

Type of property

established property

established property

newly constructed

Saved deposit

$80,000

$100,000

$80,000

Purchase price

$400,000

$400,000

$400,000

Gov’t grant

nil

nil

$5,000

Stamp duty

$13,796

$13,796

$13,796

Mortgage registration fee

$102

$102

$102

Transfer fee

$204

$204

$204

Total upfront government charges plus LMI fee*

$14,102

$14,102

$14,102

Loan-to-Value Ratio

83.5%

78.5%

82.3%

less LMI fee*

$3,040

nil

$2,994

Deposit left after upfront costs and LMI fee paid

$62,858

$85,898

$67,904

 

*This example assumes LMI is paid upfront. Many lenders do in fact allow LMI to be capitalised onto the principal of the loan.
 
It is important for investors to always keep the taxing effect of stamp duty top-of-mind, as the above example demonstrates. 
 
Here, both Brad and Jenny’s 20% deposit is depleted by stamp duty, which takes them into costly LMI territory, driving their upfront costs up by three grand a piece. And, given that the additional upfront costs of conveyancing, home loan costs and reports could add up to around $3,500 for a property at this price range, they could be in for even more cost trouble.
 
That takes Brad’s total upfront costs to $20,642. Or, expressed against his initial savings, upfront costs would take 26% of his savings. 68% of his costs were stamp duty.
 
Even Jenny, who received a government grant for purchasing a newly constructed property, didn’t scrape over an 80% LVR after stamp duty.
 
Fran, on the other hand, escaped paying LMI after paying upfront costs and stamp duty, with a deposit 25% of the level of the purchase price.
 
Stamp duty is a deposit killer that could reduce your deposit by 20%. Plan ahead for the effects of stamp duty by budgeting for what you’ll owe in upfront tax.
 

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Jeremy Cabral

Jeremy Cabral is a personal finance expert for Finder.com.au. He has a deep understanding of personal finance comparison helping over 5.4 million people compare financial products. When he is not working on the site, enjoys exercise and training on his new health kick.

Jeremy's passion for the internet started when he was 15 and working for his parents. After completing his degree in business and finance Jeremy has dedicated himself to genuinely helping Australians make informed choices about their finances. As the personal finance editor Jeremy strives to make sure each page on Finder.com.au answers what Aussies are looking for.