Land tax is handled by the relevant state government organisations in each Australian state. In New South Wales, land tax is administered by Revenue NSW.
Similar to taxes regulated by the ATO on federal level, in New South Wales there are various land tax exemptions and concessions that you may be eligible to claim, thereby reducing your NSW land tax liability. Land tax exemptions and concessions may be accessible for properties such as primary production land, boarding houses, low cost accommodation, residential and caravan parks, retirement villages, child care centres and crown or council land.
Importantly, there are also a number of NSW Land Tax exemptions and concessions that may be applicable in relation to your Principal Place of Residence (“PPOR”) i.e. your home, and that is the focus of this article.
When it comes to taxes, it’s safe to say that no one wants to pay more than they have to! This is true of land tax too. Let’s take a closer look at the eligibility and conditions for NSW Land Tax Exemptions and Concessions for Principal Place of Residence.
NSW Land Tax Exemptions (PPOR) General Requirements for Eligibility
Firstly, it is key to understand the general requirements for eligibility for the NSW Land Tax exemption for PPOR.
In order to be exempt from land tax for your PPOR, you should meet the following criteria:
- only claim one exemption per family
- only claim one principal place of residence worldwide
- have continuously used and occupied the property solely for residential purposes before the taxing date
- have used the land for residential purposes
- be a natural person. The exemption does not apply to land owned partly or wholly by a company or held in a Special Trust.
Recent Change to PPOR Exemption Eligibility for % Ownership of Property
The 2023-24 NSW State Budget (released 19 September 2023) announced an amendment to Schedule 1A of the Land Tax Management Act 1956 that is applicable to those who own less than 25% of a property that they claim as their PPOR.
Previously, land may be exempt from land tax where only one of multiple owners occupies the property as a principal place of residence even in cases where they own only a tiny proportion of the property.
Following the amendments, that came into effect from 1 February 2024, the PPOR exemption will only be available to a person occupying the property as their principal place of residence who owns an interest of at least 25% in the property.
The transitional provision provides that those who already claim the principal place of residence exemption from land tax but own less than a 25% interest in the land may continue to claim the exemption for the 2024 and 2025 land tax years. The minimum 25% ownership requirement will then apply to those owners from the 2026 land tax year onwards. The principal place of residence exemption must have been claimed by 31 January 2024 for the transitional provisions to apply.
Anyone who purchases a property on or after 1 February 2024 and owns less than a 25% interest in the land will not be entitled to the principal place of residence transitional provisions, making them liable for NSW Land Tax from the 2025 land tax year.
Supporting Documentation Requirements
When applying for a PPOR exemption you may need to provide supporting documents such as:
- electricity bill showing usage
- gas bill showing usage
- home and contents insurance policy
It is important to note that council land rates and water rates are not acceptable documents to support an application for PPOR exemption as these do not demonstrate residency at the property.
Concessions & Other Exemptions relating to PPOR
There are also a number of NSW Land Tax concessions and other exemptions that may be available in relation to your PPOR. These include situations such as what happens when moving between homes, building or renovating before moving in, living away from home and deceased estates.
Moving between homes
If you bought a new residence and still owned your previous home on 31 December in the last calendar year, you may be eligible for a land tax concession on both properties.
To qualify, you must:
- have taken ownership between 1 July and 31 December in the previous calendar year
- start living in the new home before 31 December the following year
- only use the new property as your PPOR, unless tenants occupied the home under an existing lease when you took possession.
Also, you must have been the only residents of your previous property up to 1 July in the previous calendar year and can’t have earned any income from it, except from:
- a permitted occupancy
- a contract the buyer entered into before settlement as part of the sale – e.g. the property is leased to tenants.
Building or renovating before moving in
From the 2017 tax year, if you plan to build or renovate, you can claim the concession for up to four years after you take ownership. If tenants or others occupy the home when you become the owner, you can only claim the concession once they move out.
To qualify:
- you must live in the property continuously for at least six months once construction is complete
- you can’t generate any income from the property once construction or renovations begin
- you and any others can only use the land for legal purposes
- the land mustn’t have the option to build more than two residences or residential units under local planning laws, including when combined with adjoining land
- you or another family member must not own and occupy another principal place of residence.
The Revenue Legislation Amendment Act 2023 which received assent on 31 May 2023 amended the Act to permit the Chief Commissioner to extend the availability of the concession from four tax years to up to six.
Chief Commissioner may extend the period if satisfied:
- 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,
- the delay is due to exceptional circumstances beyond the control of the owner, and
- the delay could not reasonably have been avoided by the owner.
The amendment commenced from 1 July 2023. However, the Chief Commissioner has the power to apply the extension to an exemption that ended on or after 31 December 2019.
For more information on the amendment, see the Commissioner’s Practice Note (CPN) 031.
Living away from your home
You may be able to claim an exemption if you move out of your main residence and live in a residence you don’t own. You can claim the exemption for up to 6 years, or up to 4 years if you can’t live on the land – e.g. due to renovation.
To qualify, you must:
- have lived there continuously for at least six months before moving away
- not own another principal place of residence
- only earn income from the property to cover basic property expenses, such as rates, water and other amenities
- not lease out your property for longer than 6 months in a calendar year – If you lease out your property for longer than 6 months, you must pay land tax in the following year, unless you move back into the home before 31 December.
Deceased estate
When someone dies, their home will be exempt from land tax, either:
- until ownership is transferred to someone else, apart from their personal representative or a beneficiary of the estate, or
- for 2 years after the date of death.
If someone still lives in the property, it’s exempt from land tax if the occupant:
- is allowed to live there according to the legal will of the person who has died, or
- isn’t a tenant but occupied the property when the owner died and has been given permission to continue living in the home by the personal representative of the person who died.
Renting out a portion of your home
If you let out part of your home and receive income, you can still claim a land tax exemption so long as the leased part of your property is:
- one room
- one suite of rooms
- one flat
- one suite of rooms and one room
- one flat and one room, or
- two rooms, occupied by two different tenants.
If you lease more of your home, you may be eligible for a partial exemption.
Using your home for business
If you conduct some business at home, you might need to pay land tax for the proportion of the property used for work.
You don’t have to pay land tax if you primarily conduct your business somewhere else and only one room in your home is sometimes used for work – e.g. a home office or workshop.
Mixed-use properties
Some uses of land are exempt from land tax, or eligible to a concessional rate.
Where land is partly used as the PPOR of the owner and partly used for other non-exempt purposes, it is still possible to claim a reduction in land tax for the portion of the property that is used as the PPOR. The taxable land value will be reduced by an allowable proportion.
Do the Right Thing to Avoid Penalties
As with federal tax obligations to the ATO, it is important to be proactive when it comes to correctly complying with, and administering, your NSW land tax liabilities. Failure to do so can have considerable consequences.
Under the Taxation Administration Act 1996, Revenue NSW may seek to impose penalties for providing misleading and/or false information, or for deliberately avoiding their requests for information.
They conduct regular and thorough investigations and compliance checks to ensure that exemptions are only granted to those clients who are entitled to receive them. Under reciprocal power arrangements, they are also able to obtain information from the ATO for the purposes of land tax administration.
As auditing and data matching technology continues to improve, the chances of avoiding tax obligations, and subsequent penalties, becomes increasingly harder.
It is strongly recommended to take a proactive approach to “do the right thing” when it comes to any taxes, whether state or federal-based. Even if you perhaps haven’t been quite so diligent in the past, it is important to take action sooner rather than later, to seek to remedy the situation. It can certainly work in your favour to take the first steps, as opposed to waiting for Revenue NSW to contact you regarding non-compliance (or merely hoping that you won’t be identified).
Seek Expert NSW Land Tax Advice
If you are unsure about your eligibility for land tax exemptions for your PPOR, or for any other NSW Land Tax related query, contact the team of experienced tax accountants and tax lawyers at The Quinn Group. Call us on 1300 QUINNS or +61 2 9223 9166, or completing an online enquiry form to arrange a teleconference or appointment.
