Owning a home is a big achievement for many people in Australia. However, moving from a renter to being a homeowner is not a walk in the park. It is a costly affair that you must get everything right. One area that homebuyers, especially first-time buyers, get it wrong is failing to factor in the taxation cost that comes along with buying a new home or property. Miss the taxation aspect during the budgeting means that you might have a problem completing the process of buying a home due to lack of adequate funds.
If you are buying a house in Australia for the first time, you need to know everything about property taxes in Australia. We have rounded up the crucial information you need to know about property tax in Australia for proper budgeting. First, it is important to note that when you buy a house for the first time in Australia, you are legible for a grant. These are the taxes that you are required.
Here is a guide to Australia’s property and Home taxes.
1. Stamp Duty
One of the main taxes that home buyers need to factor when planning a budget is stamp duty. This is a tax applied whenever you buy, sell, or transfer a property. It is calculated on either the market value or the home’s purchase price. Individual states administer stamp tax, and thus it varies in amount depending on where you are buying the house. Some states and territories offer concessions for first-time buyers, but others such as Tasmania do not. It is also important to note that stamp duty is levied in brackets.
For Instance, in Queensland, there is no stamp duty for property valued at $5,000 or less. However, if your property value is between $5,000 and $75,000, you pay a rate of 1.5%. When the property exceeds $75,000, you’ll pay $1,050 and an addition of 3.5% on the value of the property. Click here to see what other states’ stamp duty.
2. Goods and services tax (GST)
If you’re looking for a new house, you will need to pay the goods and services tax (GST). However, this is one of the withholding tax. Before July 1, 2018, GST was paid by the property developer, but the Australian government moved the responsibility to the property buyer to eliminate unethical practices in the real estate. GST is a broad-based tax of 10% of the value of the property. It applied to both buyers and long-term lessees on the new property. Therefore, this tax does not affect renovated properties, even if the renovations were a major work.
It is important to understand that GST should not be an additional cost on top of the agreed home price. The tax should be part of the money that you withhold. That is why you need to get informed so that you don’t end up paying extra money after finalising the deal. You should pay the tax directly to Australia Taxation Office (ATO) immediately the property developer notifies you that it is time to pay.
3. FIRB Fees
For international investor or a temporary visa holder looking forward to buying a house in Australia, they are required to pay Foreign Investment Review Board fees or FIRB fees. This fee is an approval from the Foreign Investment Review Board (FIRB) that permits you to buy property in Australia. The fee is only payable for residential land applications and is determined by the value of the property. For residential land valued $1 million and less, you will pay $5,700. Amount keeps increasing as the value of the property rises. For instance, a residential land that valued more than $1 million but less than $2 million, you will pay $11,500. Click this link to learn more about the FIRB fee.
4. Property Taxes
Property tax is collected by a majority of jurisdictions across the world. It is an ad valorem tax on the property value. In Australia, these taxes are collected by both the state and the councils and are payable by the property owners. It is an annual tax on the property that is close to 2% of the Australia GDP.
Property tax Australia is mainly used for improving the condition of public facilities by funding projects such as garbage collection, stormwater drainage, recycling and road maintenance, street lights, landscaping, and so on. This tax does not stay steady since the state, or the local municipal can increase or reduce it depending on their budget.
5. Land Tax
If you are buying residential land in Australia, you immediately qualify for a land tax which is an annual tax payable any landowners. However, you qualify for an exception if you are using the property as our primary home. Land tax Australia is administered by states, and that’s why there may be variations. In some states such as New South Wales, foreigners are surcharged around 2% land tax. That simply means that investors in this state will pay a higher land tax than most of the states.
6. Rental Income Taxes
If you have bought a property that is earning profits by renting the space, then you qualify for the rental income tax. However, the investor is allowed to claim all the expenses associated with the property throughout the taxing period. These expenses include advertising cost, repairs and maintenance, water charges, mowing, gardening, bank charges, and pest control, amongst others. You can have all these costs removed from total rent collected to get net rent, which is taxed.
So if you are planning to buy a house or property in Australia for the first time, you need to factor in the cost of taxes in your budget. Apart from the cost of the house, you will need to add money to clear various taxes at the Australia Tax Office (ATO). There are several taxes that are imposed on both foreign and resident home buyers in Australia. In addition, there are several fees that are charged, such as the registration fee and real estate agent fee that could also increase the initial cost of the house. However, these are the main taxes.