Preamble/Background
Schedule 1A
Schedule 1A (Principal Place of Residence Exemption) of the Land Tax Management Act 1956 (the Act) applies from the 2004 land tax year. The Schedule re-enacted and revised a number of former provisions of the legislation, with the Schedule bringing together most of the provisions dealing with the principal place of residence (PPR) exemption specified in s10(1)(r) of the Act. The Schedule also clarified certain aspects of the legislation previously dealt with in Revenue Rulings LT 005, LT 020, LT 027 & LT 042.
As amendments are made to Schedule 1A, updates to this Ruling are made via a new version of the Ruling.
The NSW 2016/17 Budget introduced a surcharge land tax with effect from the 2017 land tax year. The PPR exemption does not apply to surcharge land tax for land owned by a foreign person (as defined). Although the land may be exempt from land tax if occupied as the PPR of a foreign person, the foreign person will receive an assessment for surcharge land tax.
Schedule 1A includes 16 separate clauses.
Definitions.
PPR exemption.
Meaning of residential land.
Accepted additional residential occupancies.
Permitted incidental business purposes.
Unoccupied land intended to become the principal place of residence.
Former and new places of residence both owned at the taxing date.
Accepted absences from the principal place of residence.
Concession continues following the death of the owner.
Right to reside following the death of the owner.
Concession for first home owners – shared equity arrangements.
Concession for multiple occupancy land.
Land owned by companies and trustees not exempt.
Only one principal place of residence for all members of the one family.
Two or more lots used as the site of the principal place of residence.
Two or more strata lots used as the site of the principal place of residence.
Sections 9C & 9D - Mixed Development Land and Mixed Use Land
Sections 9C and 9D provide a concession in the form of a reduction in the taxable land value where land is partly used as the owner’s principal place of residence and where another ‘non-exempt’ use is also made of the land. This part of the Ruling also replaced the former Ruling LT 040.
Ruling
Definitions – section 3
The term “principal place of residence” means the one place of residence of a person, whether within or outside Australia, that is the principal place of residence of that person. The term ‘owner’ includes joint owners, any one or more of whom may occupy the land as their principal place of residence, and deemed owners.
PPR exemption – clause 2
The exemption applies to a parcel of residential land or a strata lot that is used and occupied as the principal place of residence of the owner of the land, and for no other purpose (except as allowed in clauses 4 & 5 explained below).
The owner must use and occupy the land to qualify for the exemption. The land will not be considered to be the principal place of residence unless the owner has continuously used and occupied the land for residential purposes since 1 July in the year preceding the relevant taxing date (31 December). However, if the land has been purchased after 1 July, or if the owner has otherwise commenced or resumed occupation after 1 July, the exemption will be allowed if the Chief Commissioner of State Revenue is satisfied that the land is used and occupied as the principal place of residence of the owner on the relevant taxing date. Except as provided by clause 6, ‘use’ must be an actual use and not merely a proposed use.
Where the PPR exemption applies, it applies for the benefit of all owners. Accordingly, if the PPR exemption applies to land because one of its joint owners is eligible for the exemption, other joint owners will also receive the exemption for that land – see section 11(2) and Schedule 1A clause 2(3). However, generally the exemption cannot apply if a joint owner is a company or a trustee, even if another joint owner satisfies the eligibility requirements – see Schedule 1A clause 11 and the discussion below.
Meaning of Residential land – clause 3
The term “residential land” means the site of a building or buildings, designed, constructed or adapted for residential purposes. For guidance on the circ*mstances in which a single parcel of land may consist of two or more lots, see below under “Two or more lots, used as the site of the principal place of residence – clause 13”.
A caravan situated on land does not constitute a ‘building’ for the purposes of the PPR exemption. However, land containing a permanent structure will be regarded as “residential land” if it has been designed, constructed or adapted for residential purposes. This requires that the property contains facilities necessary for residential occupation, including a kitchen, bathroom and toilet facilities.
Concession for land on which there is one other residential occupancy – clause 4
Land is entitled to the PPR exemption if part of it is occupied by tenants, provided the rented part satisfies the definition of “excluded residential occupancy”, which consists of one of the following combinations of no more than 2 separate tenancies or lettings:
one flat plus another room or suite of rooms which is not a self-contained flat; or
no more than two rooms, separately occupied by boarders or lodgers.
Note that the definition of ‘flat’ in section 3 includes a room or suite of rooms which can be part of a building or a detached building, used or occupied as a separate dwelling.
Land being used to provide a ‘bed & breakfast’ service can retain the PPR exemption provided the guest accommodation is limited to these permitted occupancies. If the ‘bed & breakfast’ occupies more of the property than the permitted occupancies, a concession to reduce the taxable value of the land is available (see explanation of sections 9C and 9D in this Ruling).
Concession for incidental business use – clause 5
An owner of land may use one room of a residence for incidental business purposes and may derive income from this use and still retain the PPR exemption. However, the business must be primarily conducted elsewhere. For example, a plumber may use a shed for the storage of equipment or materials, or an accountant may see clients after hours in a room set aside for this purpose. If more than one room is so used, or if the owner conducts the business primarily from home, a concession to reduce the taxable value of the land is available – see explanation of sections 9C and 9D of the Act at the end of this Ruling.
Concession for unoccupied land intended to be the principal place of residence – clause 6
Unoccupied land may be exempt under the PPR exemption if the owner intends to use and occupy the land at the completion of proposed building works. If the criteria of intended use are met, the owner will be taken, for the purposes of the exemption, to use and occupy the land as a PPR.
Unoccupied land includes vacant land or land on which an existing building is to be renovated, or demolished and rebuilt.
The exemption applies for up to four tax years following:
the year in which the land was purchased, or
the year in which significant steps were taken to enable building work to physically commence on the land, in any case where a person, other than the owner, has occupied the land after its acquisition by the owner.
There is no discretion for the Chief Commissioner to extend this four year period unless the land was acquired prior to 1 January 2010.
For the 2010 and earlier land tax years, this concession only applied for two years, with a discretion for the Chief Commissioner to extend the concession if there was a delay in the building of the house beyond the owner’s control. If land was acquired prior to 2010, transitional provisions require that the concession continue to apply under the legislation existing before the amendment made by the State Revenue Legislation Amendment Act 2010. For details of how the concession applied prior to the 2011 land tax year, please see a previous version of this Revenue Ruling (LT 082 version 1).
From the 2017 tax year, when the land has been previously used and occupied for residential purposes by anyone other than the land owner (ie a tenant), the exemption will apply for the four tax years immediately following the tax year in which the other person ceases to so use and occupy the land. This replaces the previous requirement that building work had to physically commence before the exemption could apply.
The amendments made in 2016 now require that significant steps be taken within the first year of the tenant vacating the land. The lodgement of a development application can be considered a significant step.
Prior to the 2017 tax year, building work had to have physically commenced on the land for the conditions of Cl 6 (3)(b) to apply.Building work was considered to have physically commenced when demolition has commenced, footings excavated or other such preparatory work undertaken. The preparation and lodgement of plans and development applications was not recognised as the physical commencement of building work.
The land must be unoccupied during the period of the exemption and the exemption will not apply if any portion of the land is subject to a tenancy from which the owner derives income.
The intended residential use of the land must be permitted by the relevant planning laws of local and state government authorities.
After the building works have been completed, at least one of the owners must use and occupy the building as his or her principal place of residence before the end of the four year period referred to above, and must continue to so use and occupy the building for at least six months.Failure to meet this requirement will result in the concession being revoked for each year for which it had been allowed and the land will be reassessed for land tax for all those years.
The concession for an intended principal place of residence cannot apply if the owner, or any member of the owner’s family (as defined in clause 12) is entitled to claim the PPR exemption for another residence.
Land consisting of a single lot or two or more adjoining lots, intended to be the owner’s principal place of residence, will not be eligible for the concession if, under State planning laws, more than two dwellings can be lawfully built on the land.
Concession for change to principal place of residence – clause 7
The PPR exemption may apply to two homes where the owner has purchased a new home but has not sold or moved out of his or her previous home by the relevant taxing date (31 December prior to each tax year).The two homes will be exempt for the same tax year if the following conditions are satisfied:
the former home was the owner’s exempt residence on the taxing date or the previous taxing date, and
the new home became owned within the period of 6 months preceding the taxing date and,
the new home is used and occupied as the owner’s principal place of residence by the taxing date for the next tax year (see sub-clause (3A)).
Example: A person, who already owns a home, becomes the owner of a new home in October 2013 and moves into this new home in March 2014. Both homes are exempt for the 2014 tax year, regardless of which one was used and occupied on 31 December 2013 (which is the taxing date for the 2014 tax year).
The concession may also apply where, at a relevant taxing date, a person is the owner of both an existing exempt home and a parcel of vacant land on which the person intends to build a new home, provided that:
the vacant land was purchased within the period of 6 months preceding the taxing date; and
the new home is completed and occupied by the next taxing date.
No income can be derived from the former home before the relevant taxing date, other than froman “excluded residential occupancy” permitted by clause 4, or from a lease or licence arrangement with a purchaser prior to completion of a sale if the former home is being sold.As there is no requirement to sell the former home, income can be derived from it at any time after the relevant taxing date.
Additionally, no income can be derived from the new home except from a tenancy which was entered into by the previous owner.
The concession granted by this clause allowing the PPR exemption for two properties only applies for one tax year.
If the new residence is not occupied by the person as their principal place of residence by the next taxing date, a clawback will apply, and land tax will be assessed on whichever of the two properties was not used as the principal place of residence on the relevant taxing date.
Prior to the 2014 tax year, clause 7 required that the former home be disposed of by 30 June following the relevant taxing date, unless an extension of time was granted by the Chief Commissioner. This requirement was removed for the 2014 tax year.
Concession for absences from the PPR – clause 8
An owner may be absent from his or her exempt residence for a period of up to six years and retain the PPR exemption.For example, an owner may be absent during an extended holiday or the owner may have taken an employment opportunity in another city.Clause 8 specifies the criteria under which the concession will be allowed during the period of absence.
An owner who is absent from his or her principal place of residence will be taken to have continued to use and occupy that residence if:
prior to the absence, the owner continuously used and occupied the residence for at least six months; and
during the absence, the owner did not own, use and occupy another residence.
The exemption ceases if the owner fails to resume occupation within six years and the land will be taxable from that time.However, if the land is sold before the end of the six year period, the requirement for the owner to reoccupy the residence is extinguished.
From 2011, the PPR exemption also ceases to apply if the land has not been capable of being used and occupied as a principal place of residence for a continuous period exceeding four years before a relevant taxing date.
From 2007, there is no six year limit for an owner in full time care. The exemption can extend indefinitely, provided all other criteria are still met. Full time care is classified as any period during which the owner:
resides at a hospital or mental hospital as a patient, or resides at an aged care establishment while being provided with residential care or respite care; or
resides with a carer who is eligible for a carer payment under the Social Security Act 1991 (Commonwealth).
This concession does not apply to the former residence of a person who lives in a retirement village unit owned by that person.
During the period of absence by the owner, income may be derived from letting the home under a lease or licence, provided that the period of such letting does not exceed a continuous period of six months or for periods not exceeding a total of 182 days in the calendar year preceding each taxing date. Each overnight stay is counted as one day. This concession applies even if the period during which the residence is let includes the taxing date.
If the home is let for longer periods, it will become liable for land tax in the following tax year unless the rental income derived is no more than is required to pay the cost of regular outgoings such as council, water and energy rates, and maintenance costs of the owner (excluding the cost of mortgage repayments).
Maintenance charges may include lawn mowing, window cleaning, pool maintenance, and minor electrical and plumbing repairs, but do not include more substantial repairs such as repainting, replacement of a water heater, or refurbishing a kitchen or bathroom.
If the owner dies while eligible for the concession under clause 8, the concession provided by clause 9 (concession on death of the owner) will apply for up to two tax years.
Concession on death of the owner – clause 9
The PPR exemption continues to apply after the death of the owner for land which was eligible for that exemption immediately before death.
The exemption continues for up to 2 years, unless the land is transferred to another person, other than an executor or beneficiary in the process of the administration of the estate.
Where the land has not been so transferred within the 2 years, an extension may be granted if the land is used and occupied by a person who is likely to be the beneficiary in whom the land will vest as a result of the proper administration of the estate. For these purposes, land under the Real Property Act 1900 will vest in a person when that person becomes the registered proprietor of the land under that Act.
For the 2010 and earlier land tax years, if a land owner died prior to 1 January 2010, the concession only applies for 12 months, but may be extended if the property is used and occupied by a person who is likely to be the beneficiary in whom the land will vest as a result of the administration of the estate.
Concession for tenancy following the death of the owner - clause 10
The PPR exemption may continue following the death of the owner where another person is granted a right of occupancy under the will, and that person occupies the land as his or her principal place of residence.
This concession may apply to the former residence of the deceased or to other land owned by the deceased.
Likewise, if a person other than a tenant resided with the owner at the time of the owner’s death and that person continues in occupation after the death of the owner, the exemption may continue to apply where the right of occupancy is granted by the trustee of the estate or by a beneficiary to whom the land has been transferred as a result of the administration of the estate.
For example, a friend may have resided with an owner and cared for that owner prior to the owner’s death.The land will continue to attract the exemption where the trustee or a beneficiary permits the friend to continue to reside in the property.
From 2011 the exemption may be claimed even if the land is owned by a company in the capacity of the personal representative of the deceased person.
Concession for first home owners who purchase under shared equity arrangements – clause 10A
Generally, the PPR exemption does not apply to land owned or jointly owned by a company or by the trustee of a special trust. However, a first home owner who purchases a principal place of residence together with a shared equity partner will be entitled to the exemption, provided that the person is eligible for a duties concession provided under the First Home Plus Scheme, created by the Duties Amendment (First Home Plus One) Act 2007 or the First Home—New Home scheme, created by the Duties Amendment (First Home—New Home) Act 2011.
Where the shared equity partner is a natural person, the land will be fully exempt. However if the shared equity partner is a company or a trustee of a special trust, that partner will be liable for land tax on its proportionate ownership interest in the land.
Concession for multiple occupancy land – clause 10B
Where land is the site of two or more flats, one of which is the principal place of residence of the owner (or one of the owners if there are joint owners), section 9C provides a proportionate concession for the flat used as a principal place of residence.
However the land may be wholly exempt if there are only two flats and the PPR concession for excluded occupancies applies to the second flat.
Companies and trustees not exempt – clause 11
If the land is owned by a company or trustee of a special trust or if a company or special trust is a joint owner, the land will not be entitled to the PPR exemption under Schedule 1A unless one of the following exceptions is satisfied:
the company is a “trustee company” as defined in the Trustee Companies Act 1964, or is the NSW Trustee and Guardian; or
the company is the trustee of a “concessional trust” as defined in section 3B of the Act; or
the land is subject to an agreement for sale, the company or special trust is the owner and vendor of the land, and a purchaser (who is not a company or a special trust) is deemed to be the owner of the land under section 26 of the Act, to the exclusion of the vendor or registered owner; or
the company is the owner of land which is used in a company title unit scheme to which section 21A of the Act applies; or
the company is the owner of the land as the personal representative of a deceased person, and under clause 10 the land is deemed to be owned by the person who uses and occupies the land.
If the company is a ‘family company’ and a director occupies the residence on the land, or if a company acts as a trustee for natural persons who use and occupy the residence on the land, the land will not be exempt.
If the owner of the land is the trustee of a special trust (as defined in section 3A of the Act) the land will not be exempt because the beneficiaries of such a trust are not regarded as owners of the land for land tax purposes. If the land is owned by a trustee of a fixed trust, and the trustee is a natural person, the exemption will apply if the land is used and occupied by a person beneficially entitled to the land under the terms of the trust. If the trustee as well as a beneficiary uses and occupies the land, it may be exempt. However the exemption does not apply if the trustee alone uses and occupies the land as his or her PPR.
From the 2014 tax year, if land is deemed to be owned by more than one owner, all of the owners of the land are taken to be joint owners of the land for the purposes of clause 11.The PPR exemption is no longer available for land owned by a company or a special trust where a life interest has been granted to a natural person unless:
the life estate was created by the express terms of will and not by the exercise of a discretion conferred by a will; and
the duration of the life estate is based on the life of the tenant and not on the life of some other person.
Only one exempt residence for all members of the same family – clause 12
Exemption is available for only one place of residence owned by members of a family. If members of the same family own and occupy more than one residence, the exemption will only apply to one of the residences. If one of the residences is the family’s principal residence, that property is exempt and the others are liable. If two or more members of the same family have different PPRs, and each property satisfies the PPR exemption tests, the owners may elect to have the exemption apply to any one of those residences. This option to elect is available if one member of the family is deemed to use and occupy a residence which is eligible for the concession under clause 8 (concession for absences from the PPR). If an election is not made, the exemption will apply to the property with the highest taxable land value.
A family is defined as a person and his or her spouse (if any) together with all dependent children or step children who ordinarily reside with them. A person’s spouse may be a person to or with whom the person is:
legally married; or
in a de facto relationship as defined in section 21C of the Interpretation Act 1987; or
in a ‘registered relationship’ or an ‘interstate registered relationship’ as defined in the Relationships Register Act 2010.
A child or step child may be a ‘dependent’ if he or she is under the age of eighteen years and not legally married.
If the Chief Commissioner is satisfied that a person is separated from his or her spouse and has no intention of resuming cohabitation, both the person and his or her spouse may be entitled to the PPR exemption for their respective PPRs.
Two or more lots, used as the site of a PPR – clause 13
The PPR exemption may apply to a parcel of residential land consisting of two or more lots provided:
the lots are adjoining;
they are owned by the same person or persons who use and occupy the land; and
the land is the site of a single residence including an “excluded residential occupancy” – see clause 4.
Where separate buildings are erected on the separate lots, they will not be regarded as a single residence if each building is capable of separate occupation.
When determining whether two or more lots are ‘the site of a single residence’, consideration will be given to whether or not the lots have the appearance of a single integrated residence.In this regard, the lots must be adjoining, but may be divided by a fence, wall or other structure.However access must be readily available between the lots by means of a gate, door, steps, stile, elevator, opening or other similar means.
When determining whether lots are ‘owned’ by the same person or persons, the Chief Commissioner will take into account both the legal and beneficial ownership of the lots.
Two or more strata lots used as a PPR – clause 14
The PPR exemption may apply to two or more residential strata lots used together as a single residence provided:
the lots have adjoining walls or floors;
the lots are owned by the same person or persons who occupy the site and the lots comprise a single residence (which may include an “excluded residential occupancy” – see clause 4); and
there is internal access between the lots, such as an inter-connecting door, an internal staircase or a connecting balcony.
The requirement for internal access does not apply to parking or storage lots which are ancillary to the residential lots.
In determining whether lots are ‘owned’ by the same person or persons, the Chief Commissioner will take into account both the legal and beneficial ownership of the lots.
Sections 9C & 9D - Concession for Land Partially Used and Occupied as an Owner's Principal Place of Residence - Mixed Development Land and Mixed Use Land
Where land is partly used as the principal place of residence of the owner and partly used for other non-exempt purposes, the taxable land value will be reduced by an allowable proportion.
The allowable proportion is that part of the land value that applies to the part used and occupied as the owner's residence.
Where land is used for a combination of residential and commercial purposes, the Valuer-General may determine a Mixed Development Apportionment Factor (MDAF) or a Mixed Use Apportionment Factor (MUAF). An MDAF applies if that part of the land used for non-residential purposes includes use of a building which is capable of separate occupation. In any other case, an MUAF may apply.
The ‘Apportionment factor’ is the proportion (expressed as a percentage) that the rental value of the part of that land that is non-residential land bears to the rental value of the land as a whole.
Mixed development land is defined in section 14 BB of the Valuation of Land Act 1916, as a parcel of land occupied or used solely as the site of one or more buildings comprising:
one, or more than one, flat; and
one, or more than one, office.
Mixed use land is defined in section 14BBE of the Valuation of Land Act 1916, as a parcel of land that:
is the site of a residence, occupied or used for residential purposes; and
is also used for non-residential purposes
From 2011 sections 9C and 9D apply to certain concessions that are available under the PPR exemption for residential land, so that the land tax reduction can be applied in certain circ*mstances where the residence concerned is not actually being used and occupied by the owner of the land, namely:
the concessions for absences from a former residence (clause 8);
the concession on death of an owner (clause 9); and
the concessions for a tenancy following the death of an owner (clause 10).
Section 9C - Mixed Development Land
The concession for mixed development land applies where the land is partly used as the owner's residence and partly used for other purposes, such as where the property contains the owner’s PPR plus two or more rented flats, or a shop or business.
Where an MDAF has been determined and an owner's residence is the only residence on the land, the allowable proportion is the remainder of the land value after deducting the MDAF.If there are two or more residences on the land, the remainder of the land value is reduced by the proportion that the floor area of the owner's residence bears to the floor area of all residences on the land, including the residence of the owner.
Section 9D - Mixed Use Land
The concession for mixed use land applies where land is partly used as the owner's residence and partly used for non-residential purposes, but there are no buildings or parts of buildings on the land which are separately used and occupied for non-residential use. Examples include land which is partly used for a tennis court hire or coaching centre; or a building which can only be used together with the residence because it does not have its own toilet.
The ’allowable proportion‘ is the proportion of the land value which is attributable to an exempt residence. The amount of the taxable land value is therefore determined by subtracting the allowable proportion from the land value.
An application for the concession under sections 9C or 9D should be made on Form OLT 030 – 08/08.
The MDAF or MUAF recorded in the register of land values maintained by the Valuer General will be used for land tax purposes. If an MDAF or an MUAF has not been determined by the Valuer General, the owner may nominate a proportion of the total land value, which he or she considers is the ‘fair and reasonable’ proportion of the land value attributable to the dwelling.If the Chief Commissioner of State Revenue is not satisfied that the nominated proportion is fair and reasonable, the Valuer General will be asked to determine the apportionment factor.
