Tax Tip 561: Avoid Land Tax by arranging possession before settlement

Tax Tip 561: Avoid Land Tax by arranging possession before settlement


In NSW land tax is generally levied on the legal owner of the land as of 31 December at midnight each year. This strategy can work in other states such as VIC and WA, but the taxing date is different there so get some legal advice – and note that conveyancers cannot give advice on land tax and neither can tax agents or accountants.



This can be costly for a vendor selling a property where the contract and settlement straddle the new year.


Getting the timing right can save a fortune in land tax.


Who becomes liable for the land tax can changed by contracting around it – but it is unlikely a purchase will want to reimburse a vendor for land tax. Another way around it is to grant exclusive possession before settlement so the purchaser is treated as if they were the owner, for land tax purposes, before settlement.


See

s26(3) Land Tax Management Act 1956 (NSW)

LAND TAX MANAGEMENT ACT 1956 - SECT 26 Purchaser and vendor


Example

Homer sells a Sydney investment property with land valued at $1mil and he is over the threshold with other land. That will mean he becomes liable to $16,100 in Land Tax as the fireworks are let rip on New Years even (the 12 midnight fireworks to be specific).



Homer has sold his property but settlement is for the 5th of Jan and that will mean he loses $16,000 in land tax.



Homer negotiates with the purchaser to allow them to take possession before settlement. They are off work over the Christmas break and would like to use the time to move so they are happy to enter into an arrangement to do this. They will be residing in the property so there is no land tax issues for them.



Homer basically loses a week’s rent potentially, but granting possession early has saved him $16,100 in land tax.

 

What is the situation for the property which the purchaser is moving out of and hasn't yet a) sold; b) settled; or c) is to become an IP?

 

Tax Tip 95: Land Tax in NSW Between Exchange and Settlement Tax Tip 95: Land Tax in NSW Between Exchange and Settlement

 

Have seen people engineer a lease to the BUYER and that then can lead to buyer being assessed for land tax eg early access. Many buyers wont use a soliictor or conveyancer skilled to detect the issue. The vendor seeks to apply for the s26 exemption and OSR impose land tax on the buyer as they cant meet the PPOR exemption if they reside elsewhere.

 

That is what this thread is about.

WHere the buyer is living in the property there may be no land tax consequences for them if they are the one assessed. Or they may get the threshold if they are not

 

Some buyers get stung. If they dont meet the PPOR definitions. Its conditional. Easier for a vendor. Caveat emptor.