Mortgage duty relief arrives early - government abolishes duty ahead of schedule
The Government has introduced legislation to abolish mortgage duty 18 months in advance of the schedule established in last year's budget. The new timetable will completely abolish mortgage duty from 1 July 2009 and also bestow two new staged exemptions from mortgage duty intended for mortgages that are associated with housing.
The two exemptions take effect on 1 September 2007 and 1 July 2008 but only apply if the borrower or borrowers are natural persons.
Exemption for Owner-Occupied Housing - 1 September 2007
The first exemption will commence on 1 September 2007. Mortgage duty will not be applicable if the mortgage secures an advance for the purpose of owner occupied housing.
When a mortgage also secures an advance made for a purpose other than owner occupied housing, mortgage duty will not be chargeable in respect of the advance in relation to the owner occupied housing. Mortgage duty will only be applied to the non-owner occupied housing portion of the advance, for example, any advance that is to be applied wholly or predominantly for business and/or investment purposes.
To gain the exemption, a mortgage advance must fit into one of the following categories:
- 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; or
- repaying another advance, if the advance to be repaid was made in relation to an owner occupied residence.
A residence is defined as a private dwelling house (including strata units) used and occupied or intended to be used and occupied by the borrower or any of the borrowers as a residence.
Exemption for Investment Housing - 1 July 2008
From 1 July 2008 mortgage duty will not be applicable if a mortgage secures an advance for the purposes of non-owner occupied housing.
When a mortgage also secures an advance made for a purpose other than non-owner occupied housing, mortgage duty will not be charged in respect of the advance in relation to the purpose of non-owner occupied housing.
To gain the exemption a mortgage advance must fit into one of the following categories:
- financing the acquisition of an investment residence;
- financing the construction of an investment residence;
- financing alterations or additions to an investment residence; or
- repaying another advance, if the advance to be repaid was made in relation to an investment residence.
An investment residence is defined as any private dwelling house (including strata unit) 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.
Practical issues in determining purpose
The legislation anticipates that there may be difficulty in readily determining the purpose of advances. The Commissioner may prescribe criteria that need to be applied by lenders for the purpose of ascertaining whether an advance made under a particular mortgage falls within an exemption. The legislation contemplates that the Commissioner may adopt criteria set out in an APRA reporting standard. It will be interesting to see how this approach is applied in practice. It appears that the lender's determination may be intended to bind the mortgagor.
Each exemption applies to a mortgage first executed after the commencement date for the relevant exemption provisions.
However, the exemptions will apply if the advance or further advance, made in respect of an existing pre-commencement mortgage, was made after the relevant date.
Complete Abolition - 1 July 2009
The above exemption provisions are the forerunners to the final stage of the total abolition of mortgage duty that will commence from 1 July 2009.
This final stage will put into operation the complete removal of mortgage duty on any advance made in respect of a mortgage or instrument of security previously dutiable in New South Wales.