NSW Land Tax and a PPOR + Business

Many people assume because they reside in their own home its exempt from NSW Land Tax....Hmmm not necessarily. I was recently approached by someone who was affected.

So what could it take for land tax to be payable on your own home ?

Fred is a plumber. In 1989 he discussed his proposed home acquisition withn his accountant. His accountant warned that if Fred operated as a sole trader that a % of his home would be subject to CGT. The accountant advised if the business were operated by a company that CGT problem doesnt occur. So Fred setup a company Freds Plumbing Pty Ltd.

Fred operates his plumbing business from home in the rear double garage. He also has a small dedicated office / study for calls and administration. Betty largely manages the office and enquiries and bookings and supplier orders which arrive to the garage store.

Fast forward to 2019. OSR query Fred and seek to assess land tax. Fred thinks this is wrong because he knows his home is exempt.

Is it exempt ? NO.

Fred seek legal advice from Terrance Legal who advise OSR are correct. Clause 5 of the Land Tax Act Schedule 1A applies. Terrance advises Fred and Mary that one one ROOM of the home can be exempt and if a garage is used then to be exempt Fred and Mary's business must also maintain a primary office elsewhere. It does not. So the land is partially taxable.

Concession for incidental business use – clause 5
An owner of land may use one room of a residence for incidental business purposes and may derive income from this use and still retain the PPR exemption. However, the business must be primarily conducted elsewhere. For example, a plumber may use a shed for the storage of equipment or materials, or an accountant may see clients after hours in a room set aside for this purpose. If more than one room is so used, or if the owner conducts the business primarily from home, a concession to reduce the taxable value of the land is available.

The opwner needs to apply for a concession to REDUCE the taxable land by the exempt proportion. Sections 9C and 9D.

The concession for mixed use land applies where land is partly used as the owner's residence and partly used for non-residential purposes, but there are no buildings or parts of buildings on the land which are separately used and occupied for non-residential use. Examples include land which is partly used for a tennis court hire or coaching centre; or a building which can only be used together with the residence because it does not have its own toilet. (ie the outhouse rule)

The ’allowable proportion‘ is the proportion of the land value which is attributable to an exempt residence. The amount of the taxable land value is therefore determined by subtracting the allowable proportion from the land value.

An application for the eemption concession under sections 9C or 9D should be made on Form OLT 030 – 08/08. Failure to apply may mean the land could be fully taxed.

OSR review 5 years and assess tax on 20% of the land. As Fred & Mary owns other investment property and a holiday home on the coast tax further becomes payable.

The land tax may be non-deductible where the company does not pay rent to Fred & Mary. The land tax is assessed to the land owner not the company so it is not incurred by the company. There is no lease so it is non-deductible. And is likely outside time to amend for several of the years if it were.

Read Schedule 1A : Clause 5 and s9C/D
The principal place of residence exemption