The First Home Owners Grant and/or First Homeowner Rate of Duty
If you are eligible, the First Home Owner Grant and stamp duty concessions could save you many thousands of dollars. (Stamp duty is a form of tax applied to certain property transactions). The amount of the Grant will be determined by your location in Australia, the type of property you are buying and the value of the property.
You will need to be a Citizen or Permanent Resident and have not owned a house in Australia before (though certain exceptions apply as per below). Your spouse will also need to have not owned a home in Australia.
Details and loopholes that many don’t know
The First Home Owners Grant in Western Australia was established to help first home buyers offset the higher housing costs associated with the introduction of the GST on 1 July 2000.
As such, if you or your spouse have ever owned a home before 1 July 2000 you are not eligible for the Grant.
However, if you have owned a home since that date, but purely as an investment and have never lived in it, or possibly for no more than six months, you could still be eligible.
The particular rule that applies here, states:
“applicants and/or their spouses must not have previously owned or held a relevant interest in residential property anywhere in Australia:
- prior to 1 July 2000; or
- on or after 1 July 2000 and occupied that residential property as a place of residence before 1 July 2004; or
- on or after 1 July 2000 and occupied as a place of residence that residential property for a continuous period of at least six months that began on or after 1 July 2004. “
This means that this may be your second, third or fourth property, but if you hadn’t lived in any of the previous properties and have not ever received the Grant for any of those properties, you could be eligible for the Grant next time around.
Another technicality often misunderstood is the requirement to live in the property as your principle place of residence.
While you must indeed live in the property for a continuous period of 6 months, you do not need to move in straight away. In fact, you can leave it for nearly a year and rent the house for some additional cash, or until the lease on your own property expires.
Just make sure that you do establish the home as your principal residence within that twelve month timeframe though or you will have to pay back the Grant!
Here is another loophole … You need to be an Australian Citizen or Permanent Resident to apply for the Grant and/or The First Homeowner Rate of Duty, but did you know that you had 12 months to apply after your purchase? This means that you can purchase a property as a non resident or temporary resident, and if your residency status changes within 12 months then you could be eligible for the Grant and a refund on stamp duty! (This will depend on legislation specific to your State).
Frequently asked questions
How much is the Grant?
The Grant is administered locally within each State of Australia and will differ depending on respective legislation. You can call me to get more information, or go to www.firsthome.gov.au. This article has a State by State summary of current grants available. This is all subject to change, so make sure that you have current information before you make any decisions.
What type of home qualifies for the Grant?
It can be a house, unit, duplex, apartment or townhouse. The home must be affixed to land and lawfully used as a place of residence. The grant will not be available for renovations to an existing building or for the purchase of vacant land.
Does my income affect the Grant?
No, the Grant is not means tested, though there are limits to your maximum purchase price depending on your location, and whether you purchase an established house or buy vacant land and build.
What if I own or have previously owned vacant land?
Owning vacant land will not affect your eligibility for the grant.
What if I own or have previously owned property overseas?
As the property has not been owned in Australia you are not excluded from qualifying for the grant.
A working example: Building a home vs buying established
In Western Australia, maximum benefit for established homes is for a purchase price up to $430 000 where stamp duty (currently $14 440)* is waived in full. Between $430K and $530K the stamp duty is gradually applied until you are paying full duty for purchases over $530 000 (currently $19 190)*.
Alternatively, if you considered purchasing land and building a new home then potentially you could get a home up to the value of $750 000 with full concessions in most areas of Western Australia.
Land purchases up to the value of $300K are currently eligible for full waiver of stamp duty (currently $10165), and then gradually increases until you are paying the full rate of stamp duty when your land purchase price is $400 000 and above. If eligible, you could also potentially receive another $10 000 cash under the grant, making the maximum cash benefit $20 165. If you were to build a house up to the value of $450 000 on your $300 000 land you would have a $750K property without paying stamp duty.
Conversely, if you were to purchase an established house worth $750 000 then the stamp duty would be $29 740, so you can see there are attractive savings on these costs to be had if you build.
* NOTE: Stamp duty calculations are as at October 2017 and are for illustrative purposes only. You would need to check current information as concessions may have changed or not be applicable to your circumstances.
Homebuyers Assistance Account (Western Australia only)
The Homebuyers Assistant Account provides a further cash payment up to $2 000 if you are eligible for the First Home Owners Grant and you are purchasing an established property up to the value of $400 000. The scheme is funded by the interest paid on real estate agent’s trust accounts and is designed to assist with incidental costs associated with a property purchase.
You can find more information on the Department of Commerce website.
First Homebuyer Super Saver Scheme
From 1 July 2017, saving for a home deposit should be easier with the introduction of a scheme that allows first home buyers to salary sacrifice into a super fund. This will deliver a tax saving which can go towards your deposit savings, with funds in the scheme taxed at just 15% instead of the usual marginal tax rates (which are currently as high as 45%).
The benefit comes from the ability to access these additional super contributions before retirement to put towards your home deposit. You’ll be able to put up to $15,000 per year into the scheme, capped at $30,000 overall. If you’re buying with a partner, you’re both entitled to that amount, bringing your total contributions to $60,000.
You can read more about this incentive here.
Parental loans, gifts and guarantees
Your parents can also assist in a number of ways if you do not have enough deposit saved.
The most common form of assistance is to provide a Family Guarantee. There is a lenders risk fee called lenders mortgage insurance, and it generally is applied if you have less than 20% savings for your deposit. It can be many thousands of dollars.
A parent or close family member who owns a property in Australia may offer their own home as backup security for your loan and this can allow a loan for the full purchase price plus costs. The risk to your family member is if you default on your loan they may be required to step up and pay the bank any shortfall on your loan should they foreclose, plus any costs.
Rather than risk peace of mind over their own property, your family member may choose instead to gift you a deposit. This does not result in any further obligation to them.
Family backed loans
Your family member may prefer to lend you the money for a deposit rather than gifting it to you. This can be via private arrangement or there are products available that enable the loan to be run through the banking system. Your family member puts their money on term deposit with the bank and then the bank lends you the money under normal banking conditions. Your family member can choose to forego interest payable on their term deposit to result in a discounted loan for you.
It is certainly worth understanding the benefits that the First Home Owners Grant and other assistance may provide to assist with your home buying journey, and it is best to know these details before you start your house hunting.
Do feel free to call me if you would like to discuss your eligibility for any of this assistance.