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Purchasing your First Home - Some legals

Purchasing your First Home - Some legals

Welcome! Let’s learn about transfer duty, first home concessions and the first home owner grants.

Buying your own home sounds awesome. To us, it represents a significant milestone and something that people can be very proud of. So, how can we buy our first homes faster? How can we make the most of the money that we have saved? We will be covering this topic in a series of podcasts, discussing everything from saving money, getting a mortgage and moving in. Today, we are talking about the legal side of purchasing a home. If you don’t know much about the First Home Concession or the First Home Owners’ grant, read on (and listen here).

We discuss both topics with Matthew Armstrong, a senior associate from ClarkeKann Lawyers. Matt helps make law interesting and breaks down these topics so that we can digest them. Any questions we missed? No worries, send them in and we will get them answered for you!

What is transfer duty and how does it work?

Transfer duty, often known as stamp duty, is a state tax payable on dutiable transactions such as the transfer of property (aka buying a home). In relation to property, transfer duty must be paid within 30 days of the date of the agreement (signing the contract). However this date can be extended if the agreement is subject to another event occurring such as finance approval (which we will all need), satisfactory building & pest inspections, the agreement being subject to the sale of another property or, in the case of an off the plan purchase, the plan of subdivision being registered. For purchasers acquiring property off the plan, this means transfer duty is not actually payable until right before settlement even if the contract was signed some years earlier.

In Queensland, transfer duty is calculated on the higher of the consideration (e.g. the purchase price) or the value of the property. Unfortunately, this means that the government collects transfer duty even if the property is transferred by way of gift or for a nominal amount of money and the Office of State Revenue can require a valuation to determine the dutiable amount.
Residing outside of Queensland? We will cater for you too. It is all fairly similar, but to be sure, check out these links: NSW, VIC, SA, WA, TAS, NT, ACT. Or use a trusty calculator like this!

What are the exemptions to paying transfer duty? (i.e. you don’t have to pay)

There are some limited exemptions for transfer duty such as the transfer of property to a trustee of a bankrupt or charitable organisation which we could cover another time, but perhaps one of the most applicable to our listeners would be the transfer of property to one’s spouse (adorable).

There is an exemption from transfer duty if you transfer an interest in your home to your spouse where:

    • The transfer is by way of gift;

    • The transfer is from you to your spouse;

    • After the transfer you and your spouse own the home equally; and

    • The home is your principal place of residence.

This allows you and your other half to jointly own the family home where one of you previously had total ownership.

Okay, enough about the duty we have to pay, we know you have heard about the concessions that you can receive to reduce this tax payable … let’s jump straight to that!

What is the First Home Concession?

In addition to exemptions for transfer duty, there are also a number of different concessions. The first home concession is one of the most common and is available when acquiring your first home provided the home is valued under $550,000. As Matt explained, this is why you will often see new apartment buildings with a decent amount of stock valued at or just under $550,000.   

How are you eligible for a First Home Concession?

To be eligible for a first home concession when you buy or acquire property, you must:

  • have never claimed the first home vacant land concession which is a separate concession to acquire vacant land to build your first home;

  • have never held an interest in a residence anywhere in Australia or overseas. This often catches some people out who think it only applies to owning property in Australia;

  • move into the home and live there on a daily basis within 1 year of settlement; and

  • not sell the property before you move in.

For most first home buyers, it is fairly straightforward to comply with these requirements. If you have owned property before and are not eligible for the first home concession you would still be eligible for the home concession if you buy property and:

  • move into the home and live there on a daily basis within 1 year of settlement; and

  • not sell the property before you move in.

Want the bottom line? If you are purchasing your very first home and are going to live in it for a year - you will comply. Purchasing a house with your partner? It also has to be their first home. We will cover this in more detail in another episode!

What duty will you pay?

Your property solicitor can review your contract and advise you on your liability for transfer duty, your ability to claim any concessions and when you will be required to pay transfer duty (lawyers are good like that).

However, adopting the current rates for a property valued at $500,000 you would be liable for:

    • $15,925 if no concession was claimed, for example, commercial property or an investment property;

    • $8,750 if the home concession was claimed;

    • $0.00 of the first home concession was claimed!

As you can see, the concessions can be quite a substantial upfront saving.

What is the First Home Owners’ Grant?

The Queensland First Home Owners’ Grant is a state government initiative to help first home owners to obtain their new first home sooner, but it is also designed to stimulate the building and construction industry as it only applies to brand new properties. (Again, other States and Territories have similar grants - see further here: NSW, VIC, SA, WA, TAS, NT, ACT.

Currently, the First Home Owner Grant is $15,000 however if your contract is dated between 1 July 2016 and 1 June 2018 (for example an off the plan contract that was signed some time ago) then the First Home Owner Grant is $20,000.

The First Home Owner Grant can only be received if the property is a new home which can be a house, apartment, flat or townhouse that has not been previously occupied as a place of residence and has not been previously sold as a place of residence. There are some limited circumstances where you can obtain the First Home Owners’ Grant for a substantially renovated home.

How are you eligible for a First Home Owners’ Grant?

  • You must be at least 18 years of age.

  • You must be an Australian citizen or permanent resident (or applying with someone who is).

  • You or your spouse must not have previously owned property in Australia that you lived in.

  • You must be buying or building a brand new home.

  • The value of the home including the land is less than $750,000.

  • You must move into the new home within 1 year of the completed transaction and live there continuously for 6 months.

An important practical tip, especially for off the plan purchases, is to obtain a statement from the developer that the property has not been previously occupied as a place of residence and has not been previously sold as a place of residence. It can be more difficult to obtain this statement after settlement and unlike transfer duty which is paid at settlement you can apply for the First Home Owners’ Grant within the first year of settlement.

Can you rent the property out?

  • In relation to the First Home Owners’ Grant, you can rent out one or more rooms provided you also remain in the home and live there continuously for 6 months.

  • The renting requirements are much more strict in relation to the First Home Concession for transfer duty as you cannot 'dispose' of part or all of the property before moving in or within 12 months of when you occupy the property. The requirements in relation to disposal are quite broad and include leasing out a room, allowing existing tenants to remain for more than 6 months or selling the property within 12 months.

  • If the property is tenanted when you buy it, the tenants must move out within 6 months.

It should also be noted that you cannot claim either the First Home Concession or the First Home Owner Grant unless you purchase the property in your own name and the concession or grant is not available if the acquisition is in a trust or company entity.

How often do these grants and concessions change? What is the best way to stay up to date?

  • The First Home Owner Grant most recently changed on 1 June 2018.

  • The current Queensland Transfer Duty rates have been effective since 21 September 2012.

  • As the concessions and grants are managed by the Queensland Government you can stay up to date via budget updates and announcements, but more importantly, if you follow Matt Armstrong on social media as he regularly provides alerts and updates on these types of issues! (thanks Matt)

Enjoyed this blog post? It was only written thanks to our chat with Matthew Armstrong. Listen here!

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