Land Tax: 6 year exemption – maybe you need a caretaker
Land Tax is levied on the total value of all taxable land owned in NSW[1].
A simple example includes investment properties. However, exemptions do apply.
One particular exemption includes the Principal Place of Residence (“PPR”)
exemption, which provides a full exemption from land tax; with some clients
incurring Land Tax of over $50,000 annually, these savings are welcomed. You
can claim the principal place of residence exemption for land, including strata
lots, that is used and occupied as your principal place of residence (your
home).
Interestingly, the legislation allows situations where you can move out of your PPR, and move into another
residence that you do not own and still be entitled to claim the PPR exemption for the first property. Almost
as if it were an investment property. The NSW Office of State Revenue (“OSR”) provides
such periods of absence could include, “if you are posted overseas or
interstate” or you choose to take an extended holiday.
This means that an owner of a PPR can move to another residence, rent out their PPR at market rate, and still
maintain their PPR exemption. While the legislation provides that this
exemption applies for no longer than 6 years, it strangely enough provides that
within each of these years the property is rented out the rental period must
not “exceed a continuous period of 6 months, or a total period of 182 days”.
This means that the legislation allows you to be absent from your PPR and rent
it out just as long as the rental period is no longer than 6 months of each of
those years you are absent.
But don’t despair we have potential solutions. Firstly, it is possible to straddle the rental periods on either
side of the land tax year. This will effectively allow a year long rental
period whilst being no more than 6 months in either one land tax year i.e. the
rental period will be 6 months in each land tax year, 6 months in one and 6
months in the other. However, at the conclusion of the year, or second 6
months, the rental agreement will have to cease.
Another option, either at the end
of the above or from the start, for the owner of the PPR to maintain an
exemption from land tax is to allow someone to occupy the PPR on a caretaker
basis. This type of occupancy can be on a continuous basis for the full 6 year
period. This will eliminate the need to manage the intermittent rental period
issue that arises when the property is sought to be rented for no more than 6
months in the land tax year. This care taker provision provides that monies can
be derived from the PPR, “but the income is no more than is reasonably required
to cover council, water and energy rates and charges and maintenance costs of
the owner in respect of the residence.”
This provision does not provide a
blank cheque to charge market rate rental. Rather it is to provide for a
caretaker to move into the PPR and pay to the owner certain reasonable costs.
What constitutes “reasonably required” is a question that needs to be
determined on a case-by-case basis. Owners with larger residences hosting
gardens, tennis courts and pools would have greater ability to substantiate greater
payments; this is due to the higher maintenance costs of maintaining such a
residence.
If you are renting out you PPR orwish to do so, speak to CABEL Partners and we can assist.
