NSW (and other states?) Land Tax on your own home

I am surprised a few times a year to learn a client gets assessed on land tax for their own home. Over several years. As its a legal issue I then refer them to a soliictor for advice on the legal issue and the manner to object or appeal.

NSW land tax laws exempt a house and ONE occupancy (eg a room or GF) that produces income. Letting two or three rooms changes this. OSR NSW seems to troll and gather data from certain sites that indicate rooms for let or their availability which makes the issue fatal.

NSW Land Tax Schedule 1a covers the PPOR exemption
Clause 2 is the general use rule that make a property exempt. Then there are exclusions:
Clause 2(2)(a) which covers the 6 month initial use rule
Clause 4(2) which generally limits ONE additional use.
Clause 5 "incidential" business use where just one room may be used for the business
Clause 5 also has a exception that requires the primary business be primarily conducted elsewhere. So if its at home and more than one room and nowhere else a land tax issue can arise.
Clause 12 - the family rule which allows ONE exemption.
Clause 13 - Adjoining lot rule. ALL the adjoining lots must be used for the PPOR and cant be used for other purposes or fenced apart etc eg scaffolding business storage.

Lesson is just because some is your home dont assume its all exempt.

 

i've had for clients before particularly in NSW for some of my wealthier clients who own a number of blocks together. I had one client who owns three seperate blocks all next to each other and all used as part of their private property. Got the lawyers to object to their assessments and OSR recognised they were eligible for the exemption.

 

So you could buy a few properties next to each other, have a Godfather compound like thing, and claim everything as PPOR?

 

yes
and all could potentially be claimed as the main residence for CGT too

 

Could you buy the house next door, claim both together as PPOR, then rent one house out and claim the 6 year rule? Or just let a family member live in the second house for free.

 

You cannot rent out part of the main residence and retain the full exemption.

 

I see. But it opens up an interesting option. Homer buys the Flanders house. Lets Bart live in it for free, claim both together as homer’s ppor. No land tax.

homer dies. Leaves one house to Lisa, one to Bart. Both have a cost base of market value at homer’s death.

 

Yes and I have a private ruling for that for someone - without the death

 

this client pretty well does. @Terry_w has been there its enormous

 

Kerry Packer was a notable user of the PPOR and main residence rules that way. . He gradually expanded the family "compound". Bellevue Hill land. James repeated and did the same. Its a high value, tax free investment providing the ownership is correctly structured.

Many tax advisers also get the CGT version of the rule wrong. Kerry could have a block of land or two across the road or down the street used for parking by family and helpers and it may also be part of the main residence subject to tax exemption. The CGT MRE contains a limit based on area...not value. Provided the total land in use for the main residence exemption, incl adjacent land, is no more than 2hectare (20,000 sq metres) and all is in USE as part of the main residence then it can be seperately fenced and doesnt even need to be "beside" the dwelling portion of land. The key word is "adjacent" which means nearby.

This rule is used extensively for tennis courts, parking, pools and in law and similiar accomodation. I recently had a client with vacant land adjacent to his home and recommended he use the vacant land this way and suggested he sell both lots as one parcel to retain complete exemption. If he had sold them seperately the exemption on the land is lost.

The USE rule however is exceptionally important. If the total exceed 2ha this is also often not a major concern as the least valued portion of the land may be assigned to the excess provied its not under the dwelling. ie a rocky and problematic portion may have a lower value that the homogenous metre value. This may not work well in Bellevue Hill but is very common for agriculatural land with a dwelling. Eg Kenthurst, Dural etc.

 

commonly used for family compounds

 

Even one good sized one at Palm Beach formerly owned by a TV exec. Went out of his way to even hold work meetings at his "home". I'm sure he also had a family cottage in Sydney for convenience. The taxable one

 

it happens

 

Asking for a friend.

If you start off with the properties adjacent to your PPOR as IPs first to get advantage of rent and negative gearing, pay land tax etc. do I assume at a later stage you can convert those properties to be part of you PPOR before selling the whole lot to get the tax benefits? I assume there will be a minimum time period and proof of use as PPOR.

 

Yes, but in that case it can never be fully exempt if sold during your lifetime because it was partially income producing.

 

Thanks, makes sense!

 

Another question for a friend too.

Must all the properties be owned under the same legal entity?

 

Yes because they have to be sold under one contract.

 

The property (generally) will be owned by individuals to obtain main residence concessions. A company or plain vanilla disc trust property wont be eligible.

Terry raises the very simple but often missed issue that when sold ALL the property must also be sold under one contract even if it comprises multiple titles.

Why ? In the case of a taxpayer who sells of part of their land (eg battle axe rear yard) then the main residence exemption cant apply. If there are two lots each witha house then sold seperately only ONE main residence exemption can apply. If mutiple contracts are used to sell off the family compound then this fails for the same reason.

 

Thanks, great advice. This thread is bookmarked for future reference.