Tax Tip 479: The 6 Year Rule for Land Tax NSW

Land tax is levied under state legislation while CGT is levied under Commonwealth Legislation. State taxes are not connected, directly, to Commonwealth Legislation and this means the 6 year rule for CGT does not apply for land tax. Furthermore since land tax is State legislation the land tax laws are different for every state and territory of Australia.


NSW is one state that does have a ‘6 year rule’ for land tax. Under certain circumstances a taxpayer can be absent from their Principal Place of Residence (PPOR) and for it to be still counted as their PPOR for up to 6 years. However, this is very different to the CGT 6 year rule. It is much more limited and would only apply rarely I would think.


The land tax 6 year rule, for NSW, is found in Clause 8 if Schedule 1A of the Land Tax Management Act 1956 (NSW). Check it out here:

LAND TAX MANAGEMENT ACT 1956 - SCHEDULE 1A


The major difference with the CGT 6 year rule is that it can only apply where the PPOR is not income producing, see clause 8(6) and 8(7).


There is also a requirement that the owner of the property does not occupy any other property that is their PPOR Clause 8(1)(b) and that they had lived in the PPOR for at least 6 months prior to moving out Clause 8(1)(a).


Furthermore, after the 6 years is up they are supposed to move back in and occupy the property as their PPOR for at least 6 months.


One exception to the 6 year rule, which could make it longer is if the owner is in “full time care” which means residing in a hospital or aged care establishment.


If the property is income producing the maximum period that it can still be counted as the PPOR while absent is 6 months. Clause 7. It can be income producing if the income is just enough to cover the rates and maintenance costs though Clause 8(7)(b).


So, a taxpayer might be able to rent out their former main residence for a period of up to 6 years and still avoid CGT on the property, but they will unlikely to be able to avoid land tax on this PPOR if it is rented out.

 

And it has a sting. You MUST move back in within the 6 years. No exception. Had a client stuck in London in the pandemic. They failed the 6 years and were assessed . They returned 7 months late. On 4 January !!! So another year of land tax also applied. $14000. Non deductible land tax since the occupant was merely paying token amounts to cover electricity and rates. OSR refused any concession as covid wasnt a exception under Clause 8.

They also have a CGT absence issue. Their absence exceeds 6 years so pro-rata CGT will seek to tax 7 months unless the main residence at time of death rule applies to each owner. .

 

Hi there, I believe the answer is yes - land tax is payable, but if you're an Australian citizen, foreign tax resident residing overseas for ~10 years, will you need to pay land tax for a property that is a principal place of residence in Australia + not rented out? Thanks!

 

Not necessarily but depends on the state

 

Land tax surcharges may even apply in some states to persons who are foreign persons even for their own home. And for a couple this may een apply to one of them. eg Spouse is a UK citizen.

Vacant property land tax can also be a factor (Vic + ?) so a absence exemption can still fail land tax requirements for maintaining a principal residence.

 

Thanks @Terry_w @Paul@PAS.
It's in NSW

 

If you are a citizen then you are not a foreign person so no difference being here or there, for land tax purposes, but if you are absent more than 6 years the PPOR exemption can't apply