Tax Tip 581: NSW Land Tax Exemption when Owning less than 25% of the PPOR

The laws relating to land tax have recently changed in NSW. One of the changes related to the Principal Place of Residence or PPOR exemption.


Now there is a 25% ownership restriction for the PPOR exemption to apply. The relevant legislation is Clause 10 of Schedule 1A of the Land Tax Management Act 1956
LAND TAX MANAGEMENT ACT 1956 - SCHEDULE 1A


Which says:

15 Minimum interest to be held by person to claim exemption
(1) A person is not entitled to a principal place of residence exemption in relation to land unless all the persons who use and occupy the land as a principal place of residence together own at least a 25% interest in the land.

(2) This clause does not apply to a home buyer who is a participant in a shared equity scheme that is approved by the Chief Commissioner under the Duties Act 1997 , section 281.



What this means is that if someone owed 24% of a property and lived in it, if the other 75% owners did not live there then the land tax exemption won’t apply. But if someone else owned 2% and they lived there with the 24% owner the PPOR exemption could still apply as together they own more than 25%.


Previous people could get around land tax by having 1% owned by someone who did live in it.


Example

Bart can’t get a loan on his own so he buys a property with his father. His dad is putting in 76% of the money so they go 76% for Homer and 24% for Bart.

The PPOR exemption won’t apply.



But if it was 75%/25% then it would.


Example 2

If Bart’s wife was also an owner and they have 13% each then that would amount to 26% so would be ok.


Example 3

But if there was say 5 owners of 20% each then if only one resided there the exemption would not apply as less than 20% of the owners lived there.



Previously all of those scenarios above have resulted in the PPOR exemption.

 

Its far less common these days to see 1% etc. Lender rules etc. BUT...Some do exist. Wise to be wary of this minimum requirement.
Nice sneaky little law update. The Treasury and Revenue Law Amendment Act 2023 also included a sneaky fix of a defect in the 4 year rule. Many were hit with COVID issues and couldnt afford to engage builders at a high cost.

(7A) The Chief Commissioner may extend the period of 4 tax years in subclause (3)(a) or (b) to a period of up to 6 tax years if the Chief Commissioner is satisfied--
(a) there has been a delay in the completion of the building or other works necessary to facilitate the owner's intended use and occupation of the land as a principal place of residence, and
(b) the delay is due primarily to exceptional circumstances beyond the control of the owner, and
(c) the delay could not reasonably have been avoided by the owner.

Terry - Am I incorrect that the new clause 15 expires on 31/12/2025 See View - NSW legislation

 

My interpretation of that is if you have already owned a property that is your PPOR with less than 25% ownership you would be fine until Dec 25. thereafter the PPOR exemption may not be available unless others owning totally 25% also live there as their PPOR.

70 Principal place of residence exemption
(1) Schedule 1A, clause 15 does not prevent a person from being entitled to a principal place of residence exemption in relation to land if the person was previously entitled to the exemption in relation to the land.(2) This clause ceases to apply at the end of 31 December 2025.

 

And thats the difference between a lawyer and tax adviser people. Good interpretation

So we found a minor safety net for anyone who owns under 25% and resides in the dwelling and no other owner does. Until December 2025. I wonder if they must apply for that comncession?

Most concessions are not automatic and do need to be requested. OSR are likely to then seek proof of that minority interest actually residing and the duration. Be wary of the 6 month rule which requires a occupancy of at least 6 months...not just on a taxing date

 

Hi @Terry_w ,

I’m not impacted by this change but I wonder / assume that other parts of the Act would deal with different ownership structures potentially impacted by this change.
Particularly thinking where title is a partial ownership of the ‘land’.

ie Body Corporate / Strata title where a high percentage of renters (say 80%) apply.
Eg Bart lives in 1 of 5 strata units as PPOR and other 4 are rented out as IP’s.

Or Company title? As ‘Person’ definition includes a company?

Could these PPOR owners be inadvertently captured or is it determined by the definition of ‘land’ elsewhere within the Act?

Just a thought bubble.

 

Not really

ALL NSW land is potentially exposed to land tax. However most occupied PPORs are exempt, subject to a few issues. A strata entitlement is considered a interest in property and any land associated with it. Often very minor value overall. Each stratum is portion of a overall site just like freehold land. The % of land is a fixed % of the total.

Entities cannot usually get a PPOR exemption where individuals (and some rare trust issues) may. A company is not eligible to have a principal place of residence just as it cannot access the CGT main residence exemption. A company cant "reside" and can only occupy. A company is a person in law to allow it to sue and be sued etc but is not a physical person capable of residing. But ironically if title is a company title then thats still a form of strata scheme holding and can be exempted if a owner resides and may be eligible for the main residence exemption.

Each owner must seperately consider both occupancy and land tax rules in their respective states.

The rules for exemptions are listed and explained in Schedule 1A of the NSW Act.

 

No

Company title is treated as if you owned it as strata title basically. and strata title is treated as if you owned land.