Land tax exemption in NSW for PPOR

Yes probably a lot of complex issues would make it not work. CGT on granting a life estate for starters.

 

Good point. Consider the following;

1. A mother buys an investment property outright in a NSW fixed unit trust (TRUST A) for the purposes of obtaining the land tax threshold. As per CL 11 (1) c - NSW LTMA SCH1A
2. She holds almost all the units
3. The son resides at the property. As this is his PPOR, he can technically claim full exemption - on his unit holdings - provided the trustee is a natural person*.

1. When the mother dies, she intends to leave the property** (ie; her units) to a remainderman via a testamentary trust (TRUST B)***, with a corporate trustee (COMPANY B).
2. As COMPANY B is her ‘legal personal representative’, CGT is avoided (LT082V5), despite the property not being her PPOR
3. She gives the son a right to reside through her will CL 10 (1) a – LTMA SCH1A
4. Under CL 10 (2) - LTMA SCH1A, the son is again exempt from land tax
5. At almost all stages, the son’s exposure is limited since he essentially owns nothing.
6. If the son dies or leaves, the property passes to TRUST B**** which will trigger partial CGT (CGT would be payable anyway, since it is was never a PPOR)

*that NSW fixed unit trusts with a corporate beneficiary are illeligible for the LT threshold
**units are not locked up in an irrevocable trust and not outside probate
***presumably achieved by altering the unit trust deed and switching to corporate trustee.
****Can TRUST B be any type of trust and is a natural person necessary as a beneficiary.

 

The trust b cannot be any sort of trust.

If a testamentary discretionary rustee owns the property a person residing in the property under a life interest will mean it can be land tax exempt.

Why quote a revenue ruling for cgt?

 

Let's say Homer & Marge buy and live in a PPOR. Five years later they build another dwelling on the same block of land and rent out that dwelling, still being on one title. Is that property 100% exempt from land tax or will a portion of that property be up for land tax (or use up some of their land tax threshold)? If so, I presume they will need to inform the relevant authorities of the change of the property.

 

Could be exempt if in nsw

 

Could someone please confirm the following;
My mother dies and grants me a ‘right to reside’ in her investment property (via a testamentary trust) and I occupy that property (as PPR), I am exempt from land tax, regardless of who the remainderman is (fixed unit trust, special trust or company)?

The Land Tax Management Act 1956 No 26 Part 4, Sect 20 (3) is rather unclear as it makes no mention of the remainderman structure.

The State Revenue Legislation Amendment Act 2014 (SCH 2 [9]) interpretationsays; “The Principal Place of Residence (PPR) exemption will no longer be available if the person with a remainder or reversionary interest is a company or a special trust”, but then says “The amendment does not affect life estates created by a will where the life estate is granted to a natural person whose life is also the subject of the life estate”. This seems to say the remainderman is irrelevant - unless the life estate is created by deed (and not will).

Regards

 

Yes I think so

 

Depends what OSR think of the will. If it also grants a future property interest they won't accept life tenancy. Could be a trust and be liable to full land tax. Ruling likely needed

 

Hi Paul,

1. The whole question revolves around asset protection to the Life Estate (LE).
2. I read the OSR guidance is saying "well your mum died to get you this life estate. So no tax - for you".
3. The LT treatment of the remainderman depends on its structure, no? If LE is content to die in property, the LT on the remainderman is of no interest; unless LE is forced to 'reaquire' control of property.
4. Re: ''future property interest'. I think you are referring to a 'look-through' or avoidance structure. That would be true where LE owned Remainderman Co. (his Co. would have effectively avoided LT during whole of LE's life)! That could be circumvented by using 'Stooge Co.' where LE buys shares and gains directorship for $2 when he needs to sell. Yes, CGT, but that would happen anyway.
5. Or buys units in 'Stooge Unit Trust' (no duty in NSW) and sells immediately (the CGT is borne by the 'stooge' unit holder). Unlike Co., gets 50% CGT.
6. I know there's a big CGT problem, but not clear on detail. But wouldn't asset protection to LE be consistent?

 

All very good questions for a solicitor. A testamentary trust and the term remainderman may be conflicts to consider. A correctly defined TT should have specific beneficiaries (not necessarily all named but through a relationshsip to those that are). Often overlooked can be limits through perpetuity clauses etc too. OSR can reassess duty and land tax if schemes are conducted at a laterdate. Changes to the trust ie appointor etc are a reportable event I believe in Vic.

 

A life estate can be good asset protection, but it will depend on what is meant by the phrase and how the will is drafted.
If it was a personal right to reside that is not really anything that can fall into the hands of creditors it has no value.
But if it was a right to reside with rights to rent, mortgage (the LE), move the LE to anther property etc then this has value and it is property that could fall into the hands of creditors.