Land tax is an area that Revenue NSW is regularly targeting in their audits and investigations.
In our Tax & Super practice, we have advised and worked with a number of clients on two common land tax exemptions - the principal place of residence exemption and the primary production exemption.
Client wins on primary production
We have recently helped clients with successfully arguing that the "primary production" exemption under section 10AA of the Land Tax Management Act 1956 (NSW) (LTMA) applied to their land.
One client was issued with land tax assessments over the last six land tax years (up until 31 December 2024), totalling $226,000.
Revenue NSW initially took the view that the primary production exemption did not apply because the horses that were maintained on the property were for "recreational riding."
We convinced Revenue NSW, with the evidence presented to them, that the maintenance of horses on the farm was not for 'recreational' riding but that the horses were ultimately maintained and trained for sale (as polo ponies) and that riding them was purely part of their routine to be trained up as polo ponies.
We also showed that the client engaged in two other recognised 'primary production' uses of the farm, being the breeding of cattle for sale and the cultivation of timber planation for harvest and sale. The land used to breed cattle and the timber planation took up over 90% of the land. Amongst other matters, we noted that the horses maintained on the property, as part of their polo training routine, were ridden to steer the cattle from paddock to paddock.
Revenue NSW allowed our objection and reduced the land tax assessments to NIL.
Another client was also issued with land tax assessments over the last six land tax years (up until 31 December 2024), totalling $112,000.
Revenue NSW's position at the time was that there was rental income derived on the cottage situated on the land and so the land tax exemption was denied.
We convinced Revenue NSW, on the evidence presented to them, that the dominant use of the land was the breeding of cattle for sale, notwithstanding that there was a cottage on the farm that generated rental income. Amongst other matters, we noted that the cottage only took up less than 1% of the whole area of the land.
Again, Revenue NSW allowed our objection and issued our client a refund for the land tax paid.
Pitfalls for the PPOR exemption
In our Tax & Superannuation practice, we've advised a number of clients on the principal place of residence (PPOR) exemption. Below are some of the key issues that clients need to be aware of to claim this exemption.
25% ownership threshold now required
As alluded to in this article, the owner that uses and occupies the property as their PPOR must own at least 25% interest in the property1.
We recommend that individuals who are looking to continue to claim the PPOR exemption on their property but hold less than a 25% interest in it, to consider bringing up their percentage interest to at least 25%. There may be capital gains tax and stamp duty implications for doing so, which we can advise on.
Denial of PPOR exemption
Even if an individual owner holds at least a 25% interest in the property claimed as his or her PPOR, the PPOR exemption is still denied if a part owner of the property is a company, or the individual acts as a trustee only, or an interest is held by a "special trust"2.
The discretionary testamentary trust is a common estate planning tool used for passing down wealth to family members. However, such trusts are likely to be considered "special trusts" which denies the PPOR exemption (and incidentally, also denies the land tax free threshold) for any beneficiary wishing to live in a property owned by such testamentary trust.
There are several strategies that are available in an estate planning context to preserve the PPOR land tax exemption, such as using life estates3 or rights to occupy4. Careful drafting of the Will is still required.
Surcharge land tax
Where land tax exemption is sought, consideration must be given to whether surcharge land tax may still be payable where the owner (or a part owner) of the land is a "foreign person".
Consider the situation where a part owner of a property, being an Australian permanent resident (i.e. not an Australian citizen), was absent from the property (that was their PPOR) for an extended period of time (i.e. greater than 200 days in a year) due to particular family circumstances.
Whilst that permanent resident would be able to claim the property as their PPOR while he or she was absent from it for up to a maximum period of six years5 (and thus claim the land tax exemption), that permanent resident is still liable to pay surcharge land tax as the person, being a "foreign person", was not using or occupying the property for a continuous period of at least 200 days in a land tax year6.
What are the next steps?
If any of the following land tax matters (and surcharge land tax) matters arise for you or your clients:
- you are issued with a Notice of Investigation from Revenue NSW in relation to land tax;
- you are seeking the PPOR exemption, but you hold less than 25% of the property;
- you are going to be absent from your property for an extended period of time;
- you are updating your Will and considering how to pass down the family home;
- you are considering purchasing a property in a trust, including a unit trust, superannuation fund, or family trust; or
- you are considering purchasing in your own name, but you are not an Australian citizenship,
please contact Coleman Greig's Taxation & Superannuation Team and we would be pleased to assist.
Footnotes:
1 Section 15 of Schedule 1A of the LTMA.
2 Section 11 of Schedule 1A of the LTMA.
3 Section 20 of the LTMA.
4 Section 10 of Schedule 1A of the LTMA.
5 Section 8 of Schedule 1A of the LTMA.
6 Section 5A and 5B of the Land Tax Act 1956 (NSW).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
