Mortgage duty is payable on secured lending transactions where any of the property the subject of the security is located in New South Wales. New South Wales is the only Australian state that continues to levy mortgage duty, however it will be abolished from 1 July 2012.

Mortgage duty is levied at the rate of 0.4% of the amount secured and by reference to the proportion of the secured property in NSW relative to the total value of the secured property. On large transactions (such as construction and development financing), the amount of mortgage duty payable on the transaction can be significant.

Although mortgage duty will only be abolished from 1 July 2012, the Duties Act 1997 (NSW) ("Duties Act") already contemplates such abolition and provides that even if a mortgage over New South Wales property is in place prior to 1 July 2012, any additional advances made after 1 July 2012 secured by such mortgage will not liable to mortgage duty. This is particularly important in development financing transactions where periodic drawdowns occur on a progress claim basis.

In relation to developments currently being considered for funding, the payment mechanism provided for by the Duties Act can already provide substantial benefits in reducing the total cost of funding.  Although a small cost element, the abolition of mortgage duty in New South Wales (which will result in mortgage duty not being levied in any state or territory of Australia) will clearly be a positive step in secured lending transactions and may already be able to provide benefits to borrowers (depending on the nature of their financing arrangements).

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