Resources for Mortgage Brokers

We have several clients and financiers ask us questions around the calculation of transfer duty and we have summarised some of the more common issues that arise

Buyers can claim a First Home Concession for transfer duty when purchasing their first residence provided, they met the eligibility requirements. The First Home Concession only applies to a home valued under $550,000.00 (*the Home Concession may still apply for a home valued over $550,000.00).

Where a Buyer purchases vacant land or a house and land package with two contracts (one for the land and one for the build), the Buyer may be entitled to the First Home Vacant Land Concession.

This concession applies to First Home Buyers acquiring vacant land to build their first home. The concession only applies to vacant land valued under $400,000.00 and the applicant must build their first home on the land and move into it and live there on a daily basis within 2 years of settlement.

The property cannot be rented or lived in prior to the applicant moving in and there must be no building or part of a building on the land when the land is acquired.

If a Buyer is purchasing vacant land to build their home on it and they have previously held an interest in property in Australia or overseas, they will not be eligible for any concessions and will have to pay the full rate of transfer duty on the land purchase.

If an applicant is a temporary or foreign resident, they may be subject to Additional Foreign Acquirer Duty (AFAD) which is charged on top of the standard transfer duty liability. An applicant is considered a foreign individual if they are not an Australian citizen or permanent resident. A permanent resident holds a permanent visa or is a New Zealand citizen with a special category visa.

AFAD will continue to apply to a transaction even if the foreign status changes to an Australian citizen or permanent resident at a later date.

Importantly, AFAD is calculated based on the foreign acquirer’s interest of the dutiable value of the AFAD residential land. Therefore, if there are two applicants, one who is an Australian citizen and one who is a temporary resident, then the temporary resident will only pay AFAD on his/her share of the interest they hold in the property. It is for this reason that some couples elect to hold the property as Tenants in Common in uneven shares (eg. 90/10 split) to minimise the amount of AFAD payable.

Buyers are often caught out if they purchase two or more properties from the same Seller (eg. one to live in and one to rent out as an investment, or two investments) by the transfer duty aggregation rule. Transfer duty increases at progressive rates, depending on the value of the property. Where two or more transactions are grouped together, the taxes are to be aggregated and taxed as one arrangement for the purposes of calculating transfer duty.

The effect of this is that the Buyer pays a higher rate of transfer duty on the total combined value of the properties, rather than the transfer duty which would be payable on each separate transaction.

It is noted that exact time frames in which banks can provide formal finance approval can vary due to many factors such as the specific process time of a bank, the individual applicant, and also the current economic environment. Due to these factors, there will be clients that are not able to have their finance confirmed within the initial agreed finance condition requiring a purchaser to seek an extension of the finance condition. If an extension is not agreed to by the Seller prior to 5pm on the due date, the Seller has the ability to terminate the Contract and accept another offer (which is a dangerous cocktail where the market is competitive, and the banks are not keeping up). We therefore check with our clients and their brokers the day prior to the due date and suggest that an extension request be sought the day prior to the due date if possible, to give time for the Seller’s solicitor to obtain instructions from the Seller.

Once the Contract goes unconditional, we like to check in with the broker managing the file to ensure that:

• The financier has everything they need from us to ensure a smooth transition to settlement;

• To confirm the approximate funds available for settlement including any LMI that may be payable; and

• To confirm if there is an authority for shortfall funds or if funds need to come into our trust account.

We find that we often don’t know the answers to these questions from the lender until very close to the settlement date and getting last minute funds transferred across from the client can be stressful and inconvenient for a Buyer. It is therefore our preference to work together to provide a seamless experience for our client. It is also beneficial for you to know if there are any delays or issues so that they can be escalated.