Tax Tip 30: How to Minimise land tax in NSW

Hi Terry

Just to confirm, if I am absent from my PPOR, do you mean I can earn income and still not pay land tax, if I have rolling 6 month leases, or is it a maximum of 6 months rented out of every 12 months allowed? ie. cannot rent out for 6 months in a year.

Thanks

 

The OSR's interpretation is that it can only be leased for a max of 6 months and get the PPOR exemption.

But you read the legislation and tell me what you think.

 

Ok thanks. I did read it and it was quite confusing. What if it was rented on Airbnb for less than 6 months continuously, as well as less than 182 days in a calendar year preceding 30 June. Assuming a calendar year starts on 1 January.

Could you then also be exempt from land tax?

 

(7) Income may be derived from the use or occupation of the former residence in a tax year if: (a) the income is derived from a lease, licence or other arrangement under which a person has a right to occupy the former residence and the period for which any such right of occupation is conferred does not exceed a continuous period of 6 months, or a total period of 182 days, in the tax year, or

 

Ah ok thanks. Seems they mention calendar year here which I thought meant 1 January.

Revenue Ruling No. LT 082 Version 4 | Office of State Revenue

 

The six months rule is poorly understood and too often looked at in isolation. It must be looked at differently.

Clause 2 is the general PPOR exemption. Note it contains a looking back test for the preceeding 6 months. I have made italics of the key bits

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. Except as provided by clause 6, ‘use’ must be an actual use and not merely a proposed use.

Note that the "is satisfied" rule means you MUST apply for that exemption. Lets say you resume as PPOR on 3rd July.

Clause 8 has a sting too......

Absence Rule:
During the period of absence by the owner, income may be derived from letting the home under a lease or licence, provided that the period of such letting does not exceed a continuous period of six months or for periods not exceeding a total of 182 days in the calendar year preceding each taxing date. Each overnight stay is counted as one day. This concession applies even if the period during which the residence is let includes the taxing date.

If the home is let for longer periods, it will become liable for land tax in the following tax year unless the rental income derived is no more than is required to pay the cost of regular outgoings such as council, water and energy rates, and maintenance costs of the owner (excluding the cost of mortgage repayments).

So what does that mean for an AirBnb letting ??
1. "or for periods" has no continuity test.
2. A AirBnB letting may be considered a continuous period by the Commissioner (do you have a ruling otherwise?)
3. Where the period exceeds the FIRST 6 months then the exemption is lost as rent derived exceeds basic costs.

Attempting to access multiple 6 month absences would fail IMO. That is without a Commissioners Ruling on the proposed arrangement.

 

I know if you own property as a joint tenant with someone who occupies the property as their PPOR both owners are entitled to the exemption.

If the other owner lives elsewhere they can then claim their own PPOR exemption on their residence.

Does the situation change for tenants in common 99:1 if the person with the 1% interest lives in the property?

If one of the joint tenants gifts her share of the property to the other party in exchange for a life tenancy how is land tax assessed? The property would then be in one persons name, but the life tenant uses and occupies the land as their PPOR under the life tenancy.

 

A life tenant is treated as an 'owner' of the land bcause of s20 LAND TAX MANAGEMENT ACT 1956 - SECT 20 Holder of limited estate taken to be owner

 

Not correct. The OSR Rev Ruling Clause 2 states....Where the PPR exemption applies, it applies for the benefit of all owners. Accordingly, if the PPR exemption applies to land because one of its joint owners is eligible for the exemption, other joint owners will also receive the exemption for that land – see section 11(2) and Schedule 1A clause 2(3)

The use of the word jointly in Land Tax takes a different meaning to joint tenancy for legal title. Read s3 of LTMA for definition of joint owners. Joint means with others and can also include joint, TIC and also a deemed owner ie life interest. A non-owner can also be liable for land tax in some cases !!

 

Just a question regarding NSW thresholds (Im not sure if I have to pay land tax)

Property A purchased in 04/11/2011 as PPOR. (no land tax applicable as PPOR)
Property A rented from 10/12/2012 as IP (under threshold)
Property B purchased on 12/2/2015 as IP and rented (assumed land tax paid by previous owner. Property A still under threshold. No land tax applicable to both properties).

Is there no land tax bill for 2014-2015FY as Property A was under the threshold and the land tax for property B was paid by the previous owners (although combined I am over the threshold).
There is a land tax bill for 2015-2016FY as both property A and B were investments.
If I move into Property A BEFORE 30/12/16 as a PPOR, I am not liable for land tax in the 2016-2017FY as only Property B would be applicable for land tax (under threshold)?

 

See clause 2 of Schedule 1A LTMA

(2) Land is not used and occupied as the principal place of residence of a person unless:
(a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, or
(b) in any other case, the Chief Commissioner is satisfied that the land is used and occupied by the person as the person’sprincipal place of residence.

 

Thanks Terry and Paul!

I have read the OSR reading on PPOR exemption in details but I had not realised at all that the meaning of joint owner under Land Tax Act includes tenants in common too! And that's vital for estate planning to know it includes life estates too. That is really helpful. You

So if I understand correctly, if one of the tenants in common uses and occupies the property as their PPOR then all the owners benefit from the exemption unless you are a member of the same family (as you can only have one PPOR per family). But how does the OSR define a family?

For example- I imagine defacto's are still one "family" but if I own a property with my mother or a sibling??

 

OSR take a broad approach. A adult son and Mother is OK if he is a carer. Spouses takes the normal meaning and includes defacto, same sex etc. OSR tend not to take too much interest in who lives there as long as one owner resides there and meets Clause 2.

I did have a client penalised as he and his new partner commenced living together. They had a home each. OSR insisted his partner lost her exemption as she no longer resided permanently in her (former) home.

 

I've noticed some people don't pay land tax among my friends despite owning several property.

One of them said they have multiple PPOR. I'm wondering if this is possible? E.g. family owns 2 properties. One is PPOR, and the other is occupied by their son or used as a workspace and also treated as PPOR.

 

What state?

Many people are not paying and flying under the radar but will be picked up when the property is sold (and then won't be able to claim it as a deduction).

 

NSW.

 

Not possible to have more than 1 principal place of residence in NSW.

Spouses and children cannot have a separate main residence because of clause 12 of Schedule 1A which covers only one exemption per family. LAND TAX MANAGEMENT ACT 1956 - SCHEDULE 1A

 

LOts of people speed, drink drive, consume drugs and steal too. Eventually they get caught. Detection is a major aspect of all tax and legal compliance and enforcement. And penalties apply plus interest plus non-deductibility. I know of people forced to sell to pay arrears. OSR can enforce it.

 

Ok thanks for the clarification.

PPOR aside, is owning properties under different names actually a way to minimise land tax?

E.g. My parents have 3 properties under joint names. They will pay 10,000AUD per year in land tax as one of their investment property is a house. Could they have bought a property under one of their individual names to benefit from an additional $600k land tax threshold?

 

In NSW yes!

Tax Tip 124: NSW Land Tax: Comparison of Joint v Single Ownership https://propertychat.com.au/communi...comparison-of-joint-v-single-ownership.10876/