Summary
The NSW Treasurer, The Hon. Michael Costa MLC, announced changes to state taxes and duties as part of the 2007 Budget. These changes have been introduced under the State Revenue and Other Legislation Amendment (Budget) Act 2007.
One of the changes introduced is that mortgage duty be abolished in three (3) stages, commencing with the abolition of duty on mortgages for the purposes of owner occupied housing from 1 September 2007. As of this date, duty is not chargeable on advances made to natural person/s in connection with owner occupied housing, including refinancing an owner occupied home loan.
As of 1 July 2008, duty will not be chargeable on advances made to natural person/s on or after this date for investment housing. By 1 July 2009, mortgage duty will be completely abolished, after which NSW mortgage duty will not be chargeable on advances.
Advances made on or after 1 September 2007
As of 1 September 2007, mortgage duty is not chargeable in respect of a mortgage if the mortgage secures an advance or advances made for the purpose of ‘owner occupied housing’ and no other advances in accordance with section 221B of the Duties Act 1997. Section 221B applies in respect of a mortgage only if the borrower under the mortgage is a natural person or if there is more than one borrower, each of them is a natural person. An advance is made for the purposes of ‘owner occupied housing’ if it is to be applied wholly or predominantly for one or more of the following purposes:
- financing the acquisition of a residence;
- financing the construction of a residence;
- financing alterations or additions to a residence;
- financing the acquisition of residential land; and
- repaying another advance, if the advance to be repaid was made for the purpose of owner occupied housing.
Other advances
If a mortgage secures an advance made for the purpose of ‘owner occupied housing’ and another advance is not for the same purpose, mortgage duty is chargeable in relation to that other advance.
Advances made on or after 1 July 2008
From 1 July 2008, mortgage duty is not chargeable if the mortgage solely secures advances made for the purpose of investment housing where the borrowers are natural persons. ‘Investment housing’ is defined as any private dwelling house that is used, or is intended to be used or sold, for business or investment purposes (or both) by the borrower or by any of the borrowers. An advance is made for the purpose of ‘investment housing’ if it is to be applied wholly or predominantly for one or more of the following purposes:
- financing the acquisition of investment housing,
- financing the construction of investment housing,
- financing alterations or additions to investment housing,
- repaying another advance, if the advance to be repaid was made for the purpose of investment housing.
Liability of mortgage duty
The person liable to pay mortgage duty is the mortgagor. Duty is payable within three (3) months after the date of signing the document and is chargeable on the amount of advances secured by the mortgage. A mortgage becomes liable to duty or additional duty at the liability date which is either:
- the date the document is first signed; or
- on the making of an advance or further advance by which the amount borrowed exceeds the amount previously borrowed.
Calculation of mortgage duty
The amount of duty is calculated as follows:
- $5, if the mortgage secures no amount or if the amount secured by the mortgage is not more than $16,000;
- if the amount secured by the mortgage is more than $16,000 - the duty is $5, plus a further $4 for every $1,000, or part, by which the amount secured exceeds $16,000; or
- the amount of duty chargeable on a mortgage in respect of an advance or further advance is $4 for every $1,000, or part, of the amount secured.
Limited mortgages
If the amount of advances secured by a mortgage is a definite and limited sum, the amount secured by the mortgage is for the purposes of charging mortgage duty, the definite and limited sum, until such time (if any) that a greater amount of advances is secured by the mortgage. If any advance or further advance is made so that the amount secured by the mortgage exceeds, the definite and limited sum, the amount on which duty is chargeable is on that additional amount. Any increase in the definite and limited sum is taken to be a further advance for the amount of the increase.
'All moneys' mortgage
If the amount of advances secured by a mortgage is not a definite and limited sum, the amount secured by the mortgage is the amount of all advances actually secured by it. If any advance or further advance is made so that the amount of advances for the time being secured by the mortgage subsequently exceeds the amount of the advances for which the mortgage has been duly stamped under the Duties Act, the amount on which duty is chargeable is, on the amount exceeding the amount on which duty has already been paid.
Exempt mortgages
Mortgages exempt from duty include:
- a mortgage created solely for the purpose of providing security imposed on the grant of bail in criminal proceedings;
- a mortgage taken by a non-profit organisation in conjunction with a lease;
- mortgage of any ship or vessel, or of any part, interest, share or property of or in any ship or vessel;
- a mortgage given by the Government of the Commonwealth or a Government of a State or Territory or by any public statutory body constituted under a law of a State or Territory;
- a mortgage to which an offshore banking unit is a party and that would not be liable to duty if it were executed outside New South Wales;
- a mortgage under the Liens on Crops and Wool and Stock Mortgages Act 1898; and
- a charge over land that is created under an agreement for the sale of the land if any part of the deposit or balance of the purchase price is paid to the vendor before completion.
Additional advances of not more than $10,000 in 12 months
There is no duty payable on additional advances secured by a mortgage if the total of the additional advances does not exceed $10,000 in any 12 month period, provided it is not in the 12 month period following the initial advance.
Refinancing
From 1 August 2005, the mortgage refinancing concession has been capped at $1,000,000. The concession will apply to the amount of the earlier loan or $1,000,000, whichever is the lower amount. Duty of $4 per $1,000 will be payable on the amount of any excess. However, the cap does not apply to refinancing land used for primary production or agriculture.
Refinancing a mortgage means a mortgage that:
- secures the amount of the balance outstanding under an earlier mortgage that is or is to be discharged as part of the arrangements for the new mortgage;
- is created to secure an advance to the same borrower, not necessarily the provider of the security, as under the earlier mortgage; and
- is over the same property in NSW, or substantially the same property, or “part of” the same property. (“Part of” meaning where lots A, B and C were originally secured and in a refinancing only lots A and B are secured or where lots A, B and C were originally secured and in a refinancing additional property is also secured, for example lots A, B, D and E).
The concession will apply as long as one of the properties secured by the original mortgage is secured by the refinanced mortgage.
Mortgages are created to secure an advance to the same borrower if, either directly by the mortgages or indirectly through one or more collateral arrangements, the same person obtains the advances secured by them. Duty at the rate of $4 per $1,000 or remaining part of $1,000 is payable on the amount by which the advance made under a re-financing mortgage exceeds the maximum amount secured by the earlier mortgage. If an original borrower dies or is divorced or is a partner in a de facto relationship that has been terminated, the re-financing exemption still applies if proper evidence is given.
Conclusion
The abolition of mortgage duty is a state strategy which is intended to be a gradual process spread over approximately two years in three stages aimed at tackling the affordability of purchasing property in New South Wales.
By Nigel Watson with Robert Tomlinson and David Lyons.
Alfonso Grillo
Partner
Phone: 61 3 9602 9716
Alfonso_Grillo@tresscox.com.au
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