Stamp Duty for First Home Buyers; Is this Possible?

[tom32]

If you are a first home buyer of a PPOR in WA you pay no stamp duty up to 500k then it ramps up to paying full stamp duty like anyone else at 600k.

Is the following legal / possible on a home? I guess I cannot see why in theory it is not but I wonder has anyone tried it, or heard of it being tried?

Make an offer on a home of 500k even.

Make an offer of 40k seperately for the appliances, curtains, trees that could otherwise be removed in the garden etc etc . It is probable that such things are worth perhaps 40k anyway? If necessary have the owners take all the curtains down, dishwasher oven etc then sold seperately, then I can move them all back in?

I cannot think of any reason why this would run afoul of the tax department? As long as I can demonstrate that this gear is worth to someone 40k, i.e. I am not payign 200k for a few old curtains and a dishwasher and AC unit....

It is a near 20% effective rate of tax on every dollar over 500k to a first home buyer so it seems the system is such that it encourage this in that 500k to 600k odd bracket!

 

[tom32]

Just dawned on me this would have been better in the tax thread.

 

[Propertunity]

I cannot think of any reason why this would run afoul of the tax department?

Really? Then you obviously don't know the people at the OSR very well.

The other issue you are going to have is that you'll only get 80 - 90% LVR loan on $500K and then you'll have to stump up $40K of your own cash to buy the stuff back that you are proposing the vendors remove and sell back to you

 

[tom32]

Really? Then you obviously don't know the people at the ATO very well.

The other issue you are going to have is that you'll only get 80 - 90% LVR loan on $500K and then you'll have to stump up $40K of your own cash to buy the stuff back that you are proposing the vendors remove and sell back to you

I guess saving teh tax is still the better of the duel evils of tax and mortgage insurance!

Looks like I have a choice:

Either paying LMI of approx 4k as the 40k takes a chunk out of my deposit bringing me well under 20% especially as I intend to keep a little on the side for a rainy day.

or

Paying 12k in stamp duty but no LMI.

I must admit I don't fancy insurers but I would probably go for the second option as it is still 3x cheaper. Edit: oops I mean first option!!!

You also imply that it may potentially be illegal as well?

For me I see the two as two quite discreet transactions if treated properly. The stamp duty regulations no doubt seem them differently or this would be done all teh time? The tax department may I suppose will assess the fact they occur concurrently so treat them as one.

Just thinking what happens with the purchase of furnished homes. The answer I believe may lie here. Surely people do this breakup in that instance all the time?

Anyway thanks for the heads up on the other side of things; finance, as it does make the whole thing seem less worthwhile.

Edit: I guess if it was legal everyone would be doing it, right? Maybe I should stay away from the idea.

 

[tom32]

Realised an additional advantage of doing it, again only hypothetically as it is possibly illegal.

YOu make the deal for the furniture outside the deal for the house then the RE agent is also cut out of [part of] the transaction saving the owner a little coin as well.

This might compensate them for having to sell you all the gear sepeartely, i.e. pulling cupboards down, doors off hinges etc etc. (I presume in reality the act of doing all this would be for any investigation the tax department might conduct later)

 

[Gremlin]

Short answer is it can be done. However, you need to think quite seriously about it (as does the seller). We did something similar albeit for very different reasons with our last PPOR. Seller was wanting to offload some furniture, we made a firesale offer for it and negotiated a separate contract for it. But it was for chump change and we were prepared to lose the money if something went wrong.

However, bear in mind that the separate contract is not a RE contract and hence you don't have the same protection (nor does the seller). So you need to think thru what happens if you exchange on the property, pay your additional $40k and then the seller doesn't deliver the additional chattels. You'd probably be out of pocket more than $40k in legal fees trying to enforce it thru the courts.

Similarly, from the seller's perspective, they wear risk on you not coming thru without the safeguards of a RE contract. Worst case, you could complete on the RE transaction but default on the other. If I were the seller I'd want a very substantial risk premium (plus the buyer paying all my additional legals) just to contemplate it. And then I'd find myself another buyer...

 

[tom32]

Short answer is it can be done. However, you need to think quite seriously about it (as does the seller). We did something similar albeit for very different reasons with our last PPOR. Seller was wanting to offload some furniture, we made a firesale offer for it and negotiated a separate contract for it. But it was for chump change and we were prepared to lose the money if something went wrong.

However, bear in mind that the separate contract is not a RE contract and hence you don't have the same protection (nor does the seller). So you need to think thru what happens if you exchange on the property, pay your additional $40k and then the seller doesn't deliver the additional chattels. You'd probably be out of pocket more than $40k in legal fees trying to enforce it thru the courts.

Similarly, from the seller's perspective, they wear risk on you not coming thru without the safeguards of a RE contract. Worst case, you could complete on the RE transaction but default on the other. If I were the seller I'd want a very substantial risk premium (plus the buyer paying all my additional legals) just to contemplate it. And then I'd find myself another buyer...

Thanks for that. So it's doable.

I guess the best bet would be to treat the sale of the other stuff like any other sale of goods. I have sold and bought cars and stuff before privately and it has always worked OK.

I think the best way is to value the goods at fair value so neither party has a windfall from renegging on that part of the contract only.

Yes I would be devestated if I offered 40k for all the other stuff and they just dropped it around my place on the front lawn meeting their obligation under the seperate contract but reneg on the house sale!

Anyway it is a buyers market so if it can ever be done now is the time.

This is about 12k in tax it saves so the mucking around is worth it even if I go halvies with the previous owners!

 

[RumpledElf]

Just offer $499,999.95 for the house and be done with it.

Lowballing FTW!

 

[tom32]

Just offer $499,999.95 for the house and be done with it.

Lowballing FTW!

Yes I will be making the offer on 600k + listed homes.

Sellers have no shame here. The average discount is nearly 8% of the listed price and always has been.

Of course not all sellers accept but at the moment volumes are pretty thin so there are some I can imagine pretty desperate to get out.

I just wish I could afford the canal blocks south of me. The ones in Mandurah are still bloody dear but further south you can get into one for 450k. Its then though a question of distance to work.

Always wanted to live in one of those and with my philosophy on buying things that cost about what you pay for them to make plus fair profit a canal block at 450k is screaming good value.

I could not make one for that, thats for sure...

 

[Rolf Latham]

Hi Tom

Often the longest point between point a and point b is a short cut....................especially where we are looking to gain some form of advantage by not paying the OSR their entitlement

ta
rolf

 

[Gremlin]

I think you missed the point of my post. It'd take a lot more than $6k on a $600k house to convince me to stuff around with a buyer like that, if I were selling. Maybe you can find a desperate seller but I'm betting most sellers would pass you over in a flash. Too much that could go wrong with not enough protection legally for the sake of $6k.

Put yourself in the seller's shoes and ask yourself what's in it for me?

 

[tom32]

I think you missed the point of my post. It'd take a lot more than $6k on a $600k house to convince me to stuff around with a buyer like that, if I were selling. Maybe you can find a desperate seller but I'm betting most sellers would pass you over in a flash. Too much that could go wrong with not enough protection legally for the sake of $6k.

Put yourself in the seller's shoes and ask yourself what's in it for me?

The sale of the house.

I guess I can see where you are going though. I would have to pay above market price to convince them that it was a good idea and this in itself is stupid.

I guess I should be in a good negotiating position to say here is an offer not subject to anything due to my not having to sell a home first. I can make an offer and walk away till someone is desperate enough to take the offer. Having a whole lot of dodgy conditions as I am proposing around it would indeed weaken my position to the point where I would have to offer more to get a taker.

My only other way to avoid the stamp duty is to buy a block and build.

 

[Kristine..]

G'Day Tom

Once upon a time, Real Estate contracts used to be in two parts:

The Sale of Real Property, on which Stamp Duty was payable, and
The Sale of the chattels and fixtures and fittings, on which no Stamp Duty was payable.

Unfortunately, the chattels and fixtures and fittings became an increasingly large part of the purchase.

People were buying houses for $50,000 and chattels for $150,000.

This queered the pitch for everybody, and now the 'property' is an all inclusive deal. Anything to do with the sale of property now incurs payment of Stamp Duty.

Contract out of that at your peril!

We must all render unto Caesar the things which are Caesar’s, and tax of any kind is payable according to the law of the land.

A very important part of legislation is that you cannot contract out of it. If you try and avoid paying stamp duty you will find that the law has swift and severe remedies.

However, if you buy land and build a house, the one is a sale and the other is a contract for services.

Hence, the ‘stamp duty savings’ when you buy ‘off the plan’. Stamp Duty is payable on the sworn value of the land and improvements at time of sale.

The sale of furniture is not the sale of chattels. The furniture has nothing to do with the house, it just happens to be there and is sold under a Bill of Sale.

The chattels of a property are all the things which would fall out of it if the property was turned upside down and shaken. In other words, anything not fixed. Fixtures and fittings are the things which form part of the house but which could be removed without damaging the property, eg light fittings, carpets and some other items.

It is always interesting to examine and explore all possibilities. What you are proposing used to be legal but is now not legal – at least, not in Victoria. What you may be able to do in the Republic of Western Australia is between you and the State Revenue Office (not the ATO, stamp duty has nothing to do with the tax office, but with the office of State revenue).

Hope this helps
Kristine

 

[tom32]

Hope this helps
Kristine

Kristine,

Thankyou for the comprehensive reply!

 

[Lil Skater]

Forgive me, possibly a stupid question, but...

Why bother?

Just buy a cheaper house if you can't afford another few $$ on stamp duty. Then there's no question about what is and isn't legal.

 

[Archer]

Kristine is correct land and chattels are dutiable in WA. You cant legally reduce the purchase price by allocating an amount to chattels - the total of the 2 would be dutiable.

If you split the contract into two separate agreements a provision exists in the Duties Act to add the two together (aggregation).

There is not a legal way to accomplish what you suggest unfortunately.

Cheers,

Arch

 

[tom32]

Forgive me, possibly a stupid question, but...

Why bother?

Just buy a cheaper house if you can't afford another few $$ on stamp duty. Then there's no question about what is and isn't legal.

Fair question.

I guess paying a 20% rate of tax on a component of what I am buying makes me search for a better way. It seems a ludicrous way to levy a tax but I understand it only effects me this way because I am a first home buyer.

My friends don't consider me tight fisted with money (I think??) but 10k is a fair bit of coin to throw away if there is a way around. Thought it was worth asking the question?

 

[tom32]

Kristine is correct land and chattels are dutiable in WA. You cant legally reduce the purchase price by allocating an amount to chattels - the total of the 2 would be dutiable.

If you split the contract into two separate agreements a provision exists in the Duties Act to add the two together (aggregation).

There is not a legal way to accomplish what you suggest unfortunately.

Cheers,

Arch

Thanks for that Arch.

 

[reeco]

Nah its doable. Just not in that format

Its just an ethics call for some. I know a person who took a similar route. Wont mention the route but i thought about the logistics of it it made no sense overall. Youl always get people looking down there nose at you when you push the boundaries.

My answer. Keep pushing Be confident(ask a CPA) and dont tell anyone here. Even me