Tax Tip 185: Land Tax Trap when moving into a rental property in NSW

In NSW land tax is assessed on a person’s land holdings as of 31 December each year. The principal place of residence (PPOR) is generally exempt from land tax so it is commonly thought that it might save you land tax if you moved in to a rental property just before 31 Dec as opposed to just after as the taxing date is 31 December each year.


However, there is a bit of a trap for young players with this as the legislation is designed to try to prevent people moving in for a brief period and claiming the exemption and moving out again.


The legislation for this is found under Part 2 of Schedule 1A of the Land Tax Management Act 1956 (NSW).

Clause 2(2)(a) states that for a property to be the principal place of residence of a person it must be occupied since 1 July.


But there can still be a hope because the next subclause (b) gives the commissioner some discretion in applying (a). If you can convince the Commissioner that the land is occupied and used as the PPOR you can still have a chance of getting the exemption.


The way to get the discretion exercised is not to try to call up Revenue NSW and ask to speak to the Commissioner, but to submit a private ruling application, outlining your case with the evidence and make your case.


Example

Bart has several investment properties in NSW but still lives at home with his dad. Bart wants to avoid land tax on the most expensive property and his tenants are moving out in Dec on 28th. Bart plans to move in on the 30th Dec 2018 and out of the property again on the 2nd of Jan just before his new tenants move in.

Bart won’t be able to get the PPOR land tax exemption because he hasn’t lived there since 1 July 2018.

It is unlikely the Commissioner will accept that this is the PPOR of Bart because Bart is only moving in for a few days.


Originally posted on Structuring.com.au Land Tax Trap when moving into a rental property in NSW – The Structuring Blog

 

Yes a very common issue. The Commissioner will more favourably consider the application where the request demonstrates the person has moved in AND will maintain the residence for at least 6 months or greater (ie no intention to depart due to a job move for example) following the date they moved in. The private ruling request is best made with loads of supporting evidence eg changed work location, removalist expenses, utilities connections etc.

 

Interesting - I was in this position some years ago when returning to PPOR in December. I contacted NSW OSR and explained our situation, and the response was that I should update my details on the OSR website. I did that, there is a place where you can enter your PPOR exception with a start date, and you have the possibility of uploading 3 supporting documents. (why the limit of 3?).
Land Tax notice duly came around the end of February as they do showing that the amount due was $0.00 due to PPOR exemption. No private ruling or other documents were ever asked for.
I guess the situation might be different if you owned multiple properties in NSW or Australia and were moving between them, we only have 1 - that's enough
As Paul suggests I've kept loads of documents just in case. Actually it was much harder to convince the local school principal that we now lived in the school catchment area....

 

Each agency has its reasons and can ask for different things at different times. More is better....Those in genuine situations tend to have multiple sources because its their home and its a factual basis. eg Foxtel, gas, elec, license, car rego, removalist, even other docs like mobile account + broadband etc and it poses no problem.

 

How many places of residence can a person have?

 

Multiple but only one principal place of residence

 

I was just re-reading the NSW Land Tax legislation and noticed this:

The owner must use and occupy the land to qualify for the exemption. The land will not be considered to be the principal place of residence unless the owner has continuously used and occupied the land for residential purposes since 1 July in the year preceding the relevant taxing date (31 December). However, if the land has been purchased after 1 July, or if the owner has otherwise commenced or resumed occupation after 1 July, the exemption will be allowed if the Chief Commissioner of State Revenue is satisfied that the land is used and occupied as the principal place of residence of the owner on the relevant taxing date.

So you can move in after 1st July and claim the PPR concession if you are returning to your PPR or it is a new purchase, e.g. return in December and claim the PPR concession. You live happily in your PPR and then for example personal circumstances change in say 7 months time. You leave the PPR, and rent it out. Then another concession could apply:

Concession for absences from the PPR – clause 8
An owner may be absent from his or her exempt residence for a period of up to six years and retain the PPR exemption. For example, an owner may be absent during an extended holiday or the owner may have taken an employment opportunity in another city. Clause 8 specifies the criteria under which the concession will be allowed during the period of absence.

An owner who is absent from his or her principal place of residence will be taken to have continued to use and occupy that residence if:

• prior to the absence, the owner continuously used and occupied the residence for at least six months; and
• during the absence, the owner did not own, use and occupy another residence.

So the net effect is that a well timed 6+ months occupation could lead to two years exemption from NSW land tax.

Any comments from the experts on this?
Also the clause "own, use and occupy" is not very clear - does this mean in NSW, or Australia, or anywhere on the planet?

 

That doesn't appear to be from the legislation, but is a summary and interpretation of it. Best to look direct at the laws themselves.

but you are right, you could potentially get 2 years.

Generally if a term or phrase is not defined then it takes its ordinary meaning. so that phrase would not be limited to NSW or Australian property it also does not appear in the legislation which has:
(b) the person does not own any other land used and occupied by the person as a principal place of residence.

 

We had a slightly different situation where we purchased a future PPOR, it was rented for a year, but then we wished to renovate and move into it, while still living elsewhere in 1st PPOR and putting it eventually for sale. So we owned two at the same time but needed to prove from when the new one became PPOR.
So the change over took more than 6 months. So In SEP we started renovating, we had bills or receipts on both properties but what was successful for us was the documentation of cancelling the Contents Insurance on 1st PPOR in SEP, which then we put up for sale but sold only in APR following year.
What is important is that it is up to us to prove to OSR and to keep other documents rather than just bills.

 

Thanks Terry!
The quotes are from the NSW Revenue web site here:
https://www.revenue.nsw.gov.au/help-centre/resources-library/lt082v5

If the legislation does not limit this to Australian property how do they interpret different forms of land ownership in foreign jurisdictions? For example a house where the land is on a 99 year lease? Land subject to a right of usufruct? A house can be owned but the land it is on not....

 

Hi MWI, for us the key document when we moved back in was also the insurance, it changed from "occupied by tenants" to "occupied by owners".

 

s3 LTM Act
"Owner" includes: (a) in relation to land, every person who jointly or severally, whether at law or in equity: (i) is entitled to the land for any estate of freehold in possession, or (ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise, (c) in relation to any leasehold estate in land, whether legal or equitable (other than under any lease to which section 21C or 21D applies), a person, or a person who is a member of a class or description of persons, prescribed for the purposes of this paragraph, and (d) a person who, by virtue of this Act, is deemed to be the owner.