Land tax exemption in NSW for PPOR

Can someone confirm my understanding on land tax exemption in NSW.

I am living in my PPOR (Property 1, land valued at 350K) at the moment and planning to convert it as IP and rent out. Then I’ll be buying one more high value property (Property 2 land valued at ~750 K) as IP and renting out for long term. In addition to these two properties, I have one more IP (property 3, land valued at 350K).

After moving out of my current PPOR, I’ll be renting out in Sydney in some other suburb. In this case, I believe my land tax will be calculated based on the combined value of three properties and I don’t get any land tax exemption since I’ll be renting all properties for more than 6 months in a year. Please confirm my understanding is correct.

I have been told by someone that one of those properties can be exempted from lad tax as PPOR even though I don’t live there but as per OSR website, it’s not the case.

Excerpt from NSW Revenue website

Absence from your former residence


If you move out of your principal place of residence (your home), and move into another residence that you do not own (e.g. if you are posted to another part of NSW, interstate or overseas), you may be able to continue to claim an exemption from land tax.


This concession will be allowed for a maximum period of six years. The concession is only available for a maximum of four years where the land ceases to be capable of being used as a residence (e.g. where an owner knocks down the existing home to rebuild).


To be eligible for this concession:

• you have used and occupied the property as your principal place of residence for a continuous period of at least six months prior to the concession period
• you do not own and occupy another principal place of residence worldwide
• the total period in which you receive income from leasing or licensing the property does not exceed six months in a calendar year. If you lease the property for more than six months in a calendar year, you will have to pay land tax for the next tax year unless you resume occupation by the taxing date
• income is derived from people who occupy the property during your absence, provided the total income is no more than is reasonably required to cover rates, water and electricity charges and similar outgoings (but not mortgage repayments).

If you fail to resume occupation of the home as your principal place of residence following the six year absence the land will become liable for the next tax year.

 

Best to disregard what people say without evidence to back it up.
Look at Schedule 1A Land tax management act

 

Thank you Terry. I have gone through the Schedule 1A Land tax management act, it's bit confusing. Could you be able to confirm if my understanding is correct.
After moving out of my current PPOR, I’ll be renting out in Sydney in some other suburb. In this case, I believe my land tax will be calculated based on the combined value of three properties and I don’t get any land tax exemption since I’ll be renting all properties for more than 6 months in a year. Please confirm my understanding is correct.

 

If you move out of the PPOR before July 1, and it is rented out, then you are unlikely to be able to claim it as the PPOR for land tax purposes

 

Thanks Terry.

 

Prior to making that change it may be worth getting legal advice if
1. You are the sole owner
2. You have a spouse / partner / defacto and could split ownership

There could be land tax benefits and loan refresh benefits available

 

side question re: PPOR land tax exemption (100%) for beneficiaries of a trust in NSW. I know it is already available for concessionary trusts but;

Ruling LT082v5 (https://www.revenue.nsw.gov.au/help-centre/resources-library/lt082v5) says with respect to land tax on the primary place of residence that;

“If the land is owned by a trustee of a fixed trust, and the trustee is a natural person, the exemption {land tax payable on PPOR} will apply if the land is used and occupied by a person beneficially entitled to the land under the terms of the trust.

Which is similar to the QLD ruling on trust beneficiaries; https://www.treasury.qld.gov.au/resource/lta041-1/?

Is this right? OSR seems to focus on how a fixed unit trust will access the tax free threshold (true). But who gives a stuff if you could go the whole hog (100%)?

 

Yes

 

I see loads of fixed trusts that fail this exemption for one reason or another.
- Trustee is a company or multiple individuals (in some instances)
- Beneficiaries (multiple) arent all eligible
- The trust deed itself

The QLD rules are quite different and also contain many traps which are good reason why competent legal advice is obtained. Its very easy to trigger transfer duty with a trust in QLD if the parties arent aware of the duties rules concerning trust changes.

 

very interesting. I have received email confirmation from the OSR that beneficiaries of a trust held property are 100% exempt from NSW land tax as supported by Ruling LT082v5.

The key wording of CL 11 (1) c of the SCHEDULE 1A of the NSW LAND TAX MANAGEMENT ACT is;

(1) Land is not exempt from taxation under the principal place of residence exemption if:

(c) the land is owned, or jointly owned, by a person who is a trustee acting in the person's capacity as trustee of a special trust.


There are only two types of trust – either special and fixed (concession is covered elsewhere). So the converse holds true; a fixed trust IS exempt. Pretty torturous, but was confirmed over the phone. This aligns with the other states (Vic Land Tax Act §46A and QLD Land Tax Act §41) and means the following;


Consider PROPERTY P owned by a fixed unit trust (FUT) with PERSON T as the trustee. (Has to be ‘a natural person’)

PERSONS A and B are beneficiaries with PERSON B actually living on the property.

PERSON A holds 99 units and PERSON B holds 1 unit.

PERSON B can claim 100%PPOR*. (PERSON A can claim PPOR on another property (PROPERTY Q) since his unit holdings are as an investment only).

PERSON T and A can also be the same. This means unusually for an FUT, that PERSON B has almost 100% asset protection. (maybe PERSON T = PERSON A = mum).


*Also confirmed to me by OSR.

 

You should see legal advice, especially if you think there will be 100% asset protection. This is naive thinking.

Also seek advice on the issues relating to succession.

 

Well you may be concerned...

If the trustee for a fixed trust is a human and there is a sole beneficiary, If the trustee and beneficiary are the same person then it could trigger trust merger. The trust would cease to hold the property. The human is now the legal & beneficial owner. In QLD thats also potentially dutiable while in NSW it may not be. Typically a unit trust is used for a variety of legal purposes and inadvertently harming that relationship can occur.

This is why legal advice can be important. That issue is easily missed.

 

And finance

 

3 personal guarantees.

 

Actually the trustee would be the borrower with 2 personal guarantees

 

But there are two different unit holders (U/H). The only way your scenario can happen is if the control of the trust AND units of U/H A end up with U/H B. For example; mum is the trustee and majority unit holder. She dies and son (minority U/H) inherits her units AND is listed as default trustee.
Solution is to ensure that trusteeship and unit ownership passes to a Co. and trust respectively (you'll lose 100% benefit, but might hang onto L/T threshold).

 

yes, I misspoke. Let's say "the structure should provide a raised cost barrier to any hostile litigant compared to the scenario where you had no protection at all"

 

Mum could just will her units to the trustee of a Testamentary Discretionary Trust - potentially a right to reside in any trust property might be enough for the land tax threshold to apply if a beneficiary of the TDT is residing in the property. On second thoughts prob not;

 

It would give improved asset protection on bankruptcy of the other unit holder.

 

Can't see how it would work with FUT (consider case where she is a minority shareholder). May not work if 'mum' owned the land outright either (beyond 2 years) as TDT in NSW is a special trust.
A tenant, who resides courtesy of a 'life estate' granted by the owner (or corporate trustee) would recieve the PPOR exemption - even if 'mum' did not reside there (LAND TAX MANAGEMENT ACT 1956 - SCHEDULE 1A : 10 (1) a). However the tenant is reliant on the cooperation of The Remainder to sell or do anything with the property.