Budget 2017 and why time is running out to save $$ on stamp duty

The Federal budget and Victorian State Government have made significant changes to depreciation, travel expenses, and stamp duty concession. This will affect every investor’s bottom line, and purchasing decisions. You have until 1st July 2017 to save up to $20K or more on stamp duty. Read on to discover why these changes are being made.

Changes in a nutshell:

You can’t claim depreciation for removable items in established properties
You can’t claim travel expenses to visit your investment property
BUT you can get the stamp duty concession – only up to 1st July 2017

So if you’ve been thinking about purchasing an off-plan apartment or townhouse in Victoria, get onto it now.

Depreciation: rewards investors with new properties

Let’s start with what was announced in the budget about depreciation.

Labor has been vocal about what they would do to negative gearing if they get into power. They propose that negative gearing will only apply to new properties.

The main reason behind this stems from one of the goals behind why these tax benefits were originally introduced:

To encourage Australian investors to build more properties, help alleviate a housing shortage, and ideally stimulate the economy through the construction industry.

Has this happened?

No. Labor quotes that 90% of investors are enjoying the benefits of negative gearing with established properties.

Liberals have not wanted to change this area of legislation yet they seem to have come up with some common ground to appease the masses who are in support of a change:

If you purchase an established property, you cannot claim depreciation for removable items, such as appliances or floor and window coverings.

These items can only be depreciated if you purchase new:

for a newly built home
if purchased individually to add or replace in an existing property.

I think it has some merit.

These changes are rewarding those who are buying new (same goal as Labor) without potentially disrupting the whole industry.

Travel expense: no longer tax deductible

A relatively minor change in the budget:

The expense of visiting your investment property is no longer tax deductible.

Unfortunately, like a lot of things, this change has been introduced through some people abusing the system and making false or excessive claims.

I think travel to an investment property is a warranted business expense for property investors who are genuinely taking an active role in looking after their investment.

About stamp duty concession in Victoria

So now let’s look at what the Victorian State Government has done.

Victoria has been the only state to offer a concession on stamp duty for off-the-plan purchases: stamp duty is calculated on the improved value of the land at the time of signing the contract of sale.

For example:
If you purchased a townhouse for $400,000 and construction was yet to begin, stamp duty is calculated on the land value only. This may only be a couple of thousand dollars (depending on the value of the land).

One of the main reasons for this concession was to encourage and incentivise private investors to purchase in the early stages of a development so that developers can get pre-sales and begin construction.

Once again, this concession was set up for similar reasons to negative gearing: to build more properties, help alleviate a housing shortage, and stimulate the economy through the construction industry.

Quite frankly, a smart state initiative.

Changes to the stamp duty concession

As of 1st July 2017, the concession will no longer be available to investors.

As usual, through short-sightedness, the state government is looking for a cash-grab and not looking at what this may do to the industry and the housing market.

So to put things in context, that same $400,000 townhouse will incur a stamp duty fee of almost $20,000.

Investors are no longer rewarded for taking the larger risk of buying early off the plan.

One of the hottest topics at the moment is housing affordability.

Surely the government can see with basic supply and demand, that the less properties we have in the market, the greater the demand. What does that then do to prices?