On Duty: A Beginner’s Guide to Transfer Duty

February 22, 2021

When it comes to buying a property, there are so many things to get excited about. Maybe you’ve always dreamed of an inner-city warehouse conversion, or a classic Federation semi. You might be longing for a balcony where you can put your feet up at the end of the day, or a backyard where the kids can let off some steam. In the whirlwind of scrolling through listings, heading to inspections, dealing with your bank and Monday morning phone calls from real estate agents, it’s easy to overlook some of the costs associated with securing your own little piece of the world.

One of these costs is transfer duty. This is a state government tax levied on certain transactions, including buying property, which contributes an enormous amount to the state budgets every year. Here in NSW, it was previously called ‘stamp duty’ (and is often still colloquially referred to that way).

Let’s take a look into some of the key questions our NSW buyers have when it comes to transfer duty.

Ok, so how much is transfer duty going to cost me?

The amount of transfer duty you’ll need to pay is calculated at a rate based on the purchase price for the property, so generally it’s a case of the higher the purchase price, the higher the transfer duty.

To give you a general idea of how much we’re talking, an apartment priced at $500,000 will generally come with a transfer duty bill of around $18,000. For a $1 million suburban dream home, you’re looking at about $40,000. And that $5 million waterfront holiday home you’ve been eyeing off (yep, we wish!) – get ready to lay out a whopping $260,000, at least! So it’s safe to say that setting aside the funds to cover your transfer duty liability is a key consideration when you’re looking to buy a property.

If you have a property or a price guide in mind, you can check the amount of transfer duty you will need to pay using an online transfer duty calculator. You can find one on the Revenue NSW website.

First home buyers might be able to benefit from the transfer duty concessions the NSW government has introduced to help get them onto the property ladder (we touched on these concessions in a previous blogpost, on government assistance for first home buyers).

When do I have to pay it?

At the moment, buyers need to pay transfer duty upfront– it’s payable as a lump sum within 3 months of the date you exchange contracts, if you want to avoid being charged interest (which we all do!).

I’ve heard rumours transfer duty is going to be abolished, is that true?

Maybe! There are some downsides to the current transfer duty model in NSW. One of the key disadvantages is that it encourages those already on the property ladder to hold onto properties that might no longer be best suited to their needs or wants.

For example, some homeowners can be reluctant to upgrade (which ‘makes room’ for other buyers in the more affordable sectors of the market) because of the transfer duty that they will have to pay on the price of their upgraded (and likely, more expensive) home. Owners of large family homes can also be reluctant to downsize later in life because of the potentially hefty transfer duty bill – ‘why should I pay tax to live in a smaller home?’ – which has consequences for our sprawling suburbs, our infrastructure and our environment, as young families continue to venture outwards in search of the space they crave.

The state government is considering a proposal to implement a new tax system for property in NSW, but for now, transfer duty still applies.

What are the proposed changes?

Current thinking is that the government might adopt a regime giving property buyers the freedom to choose between paying their transfer duty upfront, or paying a much smaller annual property tax for so long as they own the property.

Should I put off my property search until the changes are announced?

Even if changes are implemented, the reality is that property owners will still need to pay property taxes. If you purchase a property and pay transfer duty before any changes are announced or implemented, you won’t have to pay an annual property tax (or any other new kind of tax) if the new regime is adopted – that is, you won’t be taxed twice. So if you’ve saved the funds to cover transfer duty now, there’s no reason to stop searching for your dream home with Contrax!

It’s important to note that the information above is current at the time we publish it, but may have changed since then. If you have any questions, feel free to contact us.

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