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

Land Tax in NSW Between Exchange and Settlement

In NSW land tax is levied on the owner of the property. It is generally legal ownership that determines who is liable.


When a property purchase has been contracted, but title hasn’t transferred the seller is considered the owner for land tax purposes until settlement. Section 26 Land Tax Management Act NSW 1956.


One exception to the above is

if the purchaser is entitled to any rents or profits derived from the tenancy,

or

If the purchaser is entitled to possession of the land and has taken possession.

In this case the purchaser will be considered the owner for land tax purposes – s 26(3). This would apply to instalment contract sales of property where possession has been granted but title won’t transfer until paid for in full.


Tip – try to settle after 01 January as the vendor will be liable for the land tax for the year to come, subject to the terms of the contract.

see

LAND TAX MANAGEMENT ACT 1956 - SECT 26 Purchaser and vendor

 

Should this be seller or purchaser? One would assume the seller already has possession?

 

good pick up Dave. Should be purchaser. thanks

 

From a vendor's perspective ensure that any land tax liability which arises due not only end of year but delayed settlement is at the purchaser's cost.

 

Its that time of year again. Take care when purchasing property between now and 1 Jan.

 

Not only does that specific day impact but a simple mixup with settlement or a bank delay can inadvertently trigger a problem.
Some (not all) solicitors and conveyancers will recommend a contract clause be included that addresses such a delay from either the buyer or seller perspective. However it is wise to ensure settlmenet is planned for a period well prior to the last / first working day of the year to avoid such concerns.

Then there is problem #2 (NSW perspective)
If you acquire a new home on 28th December is it exempt from land tax ? No. Any home acquired or moved into on or after 1 July of that year is not exempt.
However the Commissioner may grant exemption on application for a property intended as the principal place of residence for at least the next six months. However the Commissioner will require that you have commenced to occupy the property prior to the taxing date and that the property is used only as a home (exceptiong clauses 4 & 5). You cant delay moving in until the new year for example (Clause 2). ( refer to Schedule 1A for the cited clauses)

 

Currently interested in a NSW property settling in January. The contract has no land clearance certificate. I thought this was now mandatory?

Will there need to be another clearance certificate provided in January before settlement to ensure the vendor has paid the new liability allocated on 31/12/2020 ? Are there any risks here for the liability to pass to the buyer when crossing calendar years like this?

 

I wouldn't buy a property without one

 

The vendor will need to obtain it prior to transfer. As Terry said the accepted view is dont buy without it. Your solictor may wish to check on the contract clauses concerning liability and capacity for the vendor to delay settlement. A penalty clause can be effective to encourage them to act earlier- Just by asking. You can also apply as buyer.

Clearance certificates

Terry - Any familiarity on how a refinance can be affected? Seems a clearance cert is also needed / suggested for a mortgage title change.

 

Ive never heard of a land tax clearance certificate being required for a refinance, but it is probably a good idea for a mortgagee as the land tax will take priority over the mortgage as per s47 LTMA

 

Yeah I had never considered it until I read the NSW Clearance Cert website (link above) which recommends lenders check. Yes I agree with that view....First charge diminishes "apparent equity" and value of security. eg a 80% LVR isnt.

 

Sometimes I have to reread my own tips to refresh my memory. Someone asked me what happens in this situation so rather than research from scratch I just googled my tip to refresh my. memory.

 

In WA it is end of June, viz:

Land tax is an annual tax on land not used as your principal place of residence. You will receive a notice of assessment for land you owned at midnight on 30 June.

NB: This is actually a little confusing as I thought the stroke of midnight 30 June was actually 1 July?

 

The words in legislation refer to midnight on the taxing date eg a precise moment when 12:00:00 is the prior year v 12:00:01 when its the following year.

To say ""Land tax is an annual tax on land not used as your principal place of residence""" isnt quite correct. Eligibility for a PPOR may be available for a property that is not the actual PPOR and some may fail the eligibility for what is otherwise a PPOR. I find it more accurate to say that all land is taxable unless it is exempt.

 

for
Tax Tip 562: Land Tax in WA between Contract and Settlement Tax Tip 562: Land Tax in WA between Contract and Settlement

 

They are not my words, I quoted them from the WA Gov website: About land tax

 

a property might still be a PPOR even if not lived in, conversely it might not be a PPOR even if it is lived in.

 

But thats why websites are dangerous. Says something that isnt right v laws and rulings etc. Its like we see people say they apply for a mortgage. They dont. They apply for a loan. The lender agrees to lend if the owner offers loan security. That is called a mortgage. You dont pay a mortgage either. Its a loan. ATO at times confuses these words in rulings too !!

Terrys post also explains some variance. And its not land tax but the CGT main residence allows "absence". There are similiar absence and other rules for timing issues in some state land tax rules.

 

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