PPOR exemption from new NSW Lands tax?

Dear Forumites,

Is the NSW Stamp Duties Act interpretation of PPOR the same as the Federal Income Tax interpretation?

Will the new amendments to the NSW land tax legislation (0.4% of land value except PPOR) affect those who are currently utilising the Federal tax 6 year PPOR exemption (not currently occupying their PPOR and renting elsewhere)?

This is the part of the Ruling below that concerns me "Hence a person who takes up a temporary position elsewhere and occupies another residence during that period, may continue to claim an exemption for the original residence (subject to it not being leased - see paragraph 8)"

From NSW Revenue Ruling LT020 (dealing with Principal Place of Residence)

"2. The factors determining whether land is eligible for exemption from land tax as an owner's principal place of residence are specified in Section 3(3) of the Principal Act. Section 3(3) provides:
"For the purposes of this Act, in respect of any year in respect of which taxation is leviable or payable, land or a flat is not used or occupied as the principal place of residence of a person unless:

(a) that land or flat and no other land or flat has, since before the first day of July that last preceded the commencement of that year, been continuously used and occupied by that person for residential purposes and for no other purpose; or

(b) in any other case, the Chief Commissioner is satisfied that the land or flat is used and occupied by that person as his principal place of residence.">

RULING

4. These are three basic requirements specified in section 3(3)(a), namely:

(a) the land must have been continuously used and occupied by the owner since 1 July preceding the commencement of the tax year;

(b) It must be used for residential purposes and for no other purpose; and

(c) the owner must not have used any other land as a principal place of residence since 1 July preceding the tax year.

Use and occupation by the owner

5. As noted above, the owner must use and occupy the land in order to qualify for the exemption. The primary element of "occupation" is possession. However "possession" must extend beyond mere legal possession, to include actual control over the land. If the land has been leased to another person; the owner would not have sufficient control to satisfy the test of "occupation"

6. An owner need not be continuously resident on the land to meet the "use and occupy" test. Provided the land is maintained as the owner's principal residence whenever the owner wishes to use it, the exemption will apply. This would be so even though the land may not be physically occupied by the owner at any time during a particular year.


7. An owner may allow other persons to reside in the residence without losing the exemption provided that such residence is at the discretion or control of the owner, and the land is not used for nonresidential purposes.

8. If the owner leases the property to another person, and the lessee is given the exclusive right to occupy the property, then the land is not exempt. Note, however, that the exemption is not affected if no more than one room and one flat (or suite of rooms) are rented out for residential purposes (section 10(1 D)(b)).

Use for residential purposes and for no other purpose

9. The land must be used and occupied solely for residential purposes. However, use of land for a non-residential purpose which is consequent upon or ancillary to use as a principal place of residence will not affect the exemption, e.g. overnight parking of a truck used for business purposes, carrying out minor maintenance to the truck, or use of a room as an office to carry out work on an ad hoc basis outside normal working hours will not affect the exemption.

10. However, if a business is conducted from or on the land, the exemption will not apply. In such cases, a reduction of tax under section 3A, 3B or 3C of the Land Tax Act may apply. Under these provisions, tax is calculated on the total adjusted value of the land. The amount of tax payable is then reduced by the proportion of the buildings used as the owner's principal place of residence.

No other principal place of residence

11. A person is entitled to claim an exemption for only one principal place of residence. However, a property may be the owner's principal place of residence for a particular tax year even if the owner temporarily resides elsewhere during part (or all) of the relevant year (see paragraph 6 above). Hence a person who takes up a temporary position elsewhere and occupies another residence during that period, may continue to claim an exemption for the original residence (subject to it not being leased - see paragraph 8), but may not also claim an exemption for the temporary residence. Another case where the exemption would continue to apply is where the owner travels from place to place but maintains the property for occupation as and when required.

Chief Commissioner's discretion

12. The Chief Commissioner has a discretion to grant the exemption where one or more of the requirements in section 3(3)(a) are not met. In exercising the discretion, each case will be considered on its merits.

Examples where exercise of the discretion may be justified include circumstances in which:

(a) the owner did not take up residence until after the preceding 30 June, particularly where the owner purchased the land after 30 June;

(b) for part of the period after the preceding 30 June, the residence was rented out, but the arrangement was only temporary, e.g. the owner went on a holiday, or;

(c) part of the residence was used for non-residential purposes after the preceding 30 June, but that use was temporary or was of a relatively minor nature.

13. In those cases where taxpayers are unsure of whether they comply with the basic requirements, they should write to the Chief Commissioner providing full details, and requesting that the Chief Commissioner exercise the discretion, by 31 January of the relevant tax year.




Cheers


Ajax
 
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Oh well, another property gets added into the land tax equation :/ The net effect of the changes is still beneficial for us.
 
AJAX

The information below is taken from the NSW land tax booklet 2004.

PPOR Land Tax Exemption is available for:

Land used as the owner’s principal place of residence where income is earned
from separate accommodation such as a granny flat

Land used as the owners principal place of residence and income is derived
from the use of one room or workshop for business, if the business is primarily
conducted elsewhere;

A strata lot used as the owner’s principal place of residence and no other
purpose;

The conditions for exemption have been extended to cover absences from
your principal place of residence. The exemption may be allowed on condition
that:


The principal place of residence must be continuously used and occupied by
the owner for a period of at least 6 months;

The owner(s) may then be absent for a maximum of 6 years.

The owner(s) cannot own and reside in any other property as their principal
place of residence worldwide; and

The owners must resume occupation of the PPOR for a continuous period of 6
months or more.

Income may be derived from the property; eg a lease may be entered into for
a period not exceeding six months each year.
 
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Thanks BV,

I can see the NSW Office of State Revenue having many arguments with people incorrectly claiming the PPOR exemption from State Land tax (where their property satisfies the Federal tax PPOR definition).

Up till now many of these taxpayers (landlords intending to avail themselves of the Federal tax PPOR exemption from CGT) owned a property in NSW that was always caught by the NSW Land Tax legislation however total NSW land value has previously been below the taxable threshold (and so the issue never arose).

Ajax
 
Ajax said:
Thanks BV,

I can see the NSW Office of State Revenue having a few arguments with ppl mistakenly claiming PPOR exemption from State Land tax (where their property satisfies the Federal tax PPOR definition).

Ajax

Hi Ajax

I noticed that the 2 PPOR definitions are different and as long as they are
different, people would be testing the waters......

At the end of the day, land Tax is a state tax and people have to meet
their state's guidelines on PPOR exemption, to qualify.

I guess a PPOR exemption from Land tax will also mean exemption
from the new Stamp Duty??
 
alpina said:
so are we now saying properties under the 6 year rule are exempt?

julie

Hi Julie
As Ajax pointed out there are differences between state and federal
PPOR definitions.

A PPOR is not taxed anyway so it will be exempt if it satisfies the
state government's 6 year PPOR rules.

Having said that, its early days yet as the final details about the new tax
and the stamp duty are not published yet.

cheers
 
Hi Julie and BV,

it looks like BV has clarified this issue with his quote from the NSW Land Tax booklet-

"The conditions for exemption have been extended to cover absences from
your principal place of residence. The exemption may be allowed on condition
that:

The principal place of residence must be continuously used and occupied by
the owner for a period of at least 6 months;

The owner(s) may then be absent for a maximum of 6 years.

The owner(s) cannot own and reside in any other property as their principal
place of residence worldwide; and

The owners must resume occupation of the PPOR for a continuous period of 6
months or more.

Income may be derived from the property; eg a lease may be entered into for
a period not exceeding six months each year."

The last statement is confusing-if you are absent for up to 6 years and enter into a lease of your property for more than 6 months each year you may lose the exemption. This doesn't seem to make too much sense (and I don't see this limitation under the Federal tax system).

The practical answer may be not to lodge a NSW land tax return when lodgemnt is due next year and if questioned argue you understood your property was your sole PPOR assuming you meet all the other requirements above. Also do not enter into leases with tenants of more than 6 months duration (i.e. 6 months lease then tenancy at will). And move back in within the 6 years and stay for a further 6 month period if you are thinking of selling (to avoid the 2.25% tax on sale).

BV, I assume if you satisfy the extended NSW Land Tax PPOR definition you would also be exempt from the 2.25% Stamp duty on sale of your property.

Ajax
 
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