Important Land Tax Information

Important Land Tax Information

Welcome to the August 2010 newsletter. In this newsletter we will discuss the important issue of when land tax may apply on your home. This newsletter is particularly important if you plan to:

• Demolish and build a new home or to build a home on vacant land
   
• Go overseas/interstate while you rent out your home
   
• Understand land tax on your home for estate planning
   
• Hold two homes at the same time as you try to sell one of your properties

With new technology it is easier for the Land Tax Office to review the usage of properties and with the increasing land prices in Sydney it is important that you are able to save on land tax.

Land tax rates

The Valuer General has determined that the land tax threshold for the 2010 land tax year is $376,000. The premium land tax threshold for the 2010 land tax year is $2,299,000.
Land tax is calculated on the combined value of all the taxable land you own above the land tax threshold. The rate of tax is $100 plus 1.6 per cent of the land value between the threshold and the premium rate threshold and 2 per cent thereafter.

The land value is determined by the Valuer General. Land tax is payable on properties owned as at 31 December. There are exemptions from paying land tax on properties that you own and one of the main exemptions are properties that you occupy as your main residence. As your home is one of your biggest assets you will want to ensure that you do not have to pay any further taxes on it.

What is the main residence exemption?

You can claim the main residence exemption for land, including strata lots, that is used and occupied as your home. The area or land value of the property does not affect whether you qualify for the exemption or not. Incidental use of the property for work such as one room being used for a home office and the business is conducted primarily at a separate location will not affect the exemption.

You must also have continuously used and occupied the property since 1 July of the prior land tax year. For example, if you owned a home as at 31 December 2009 then you must have occupied the land since 1 July 2009. If the property is not occupied until after 1 July, the OSR may grant an exemption if they are satisfied that the property is used and occupied as your principal place of residence on 31 December. This will be discussed further in the article.

A family, including dependents under 18 years, can only claim the principal place of residence concession for one property. Therefore, married spouses or children under 18 cannot have separate main residences.

If there is more than one owner for the land, at least one owner must use and occupy the property as their principal place of residence.

Building a new home on the land

If you have purchased vacant land or a property which you intend to rebuild to be used as your new home, then you may be able to claim the main residence concession. You have 2 years to rebuild on the land from the time you acquire the property or construction commences. Following completion you must live in the property for at least 6 months.

The main thing to remember is that you will lose out on the exemption if you own another property in the world which you are using as your home on 31 December of the relevant year. This means that while you are developing you cannot be living in any property that you own, otherwise there may be substantial land tax to pay on the property being developed.

Further to these rules the proposed use and occupation of the property as your residence is lawful. Lastly, as a planning tip it may be possible to build more than one residence or unit and to claim the exemption. Please speak to us about this for planning assistance

Moving overseas or interstate?

With the worldwide economy you may be required for work or for business to continuously move overseas or interstate. If you move out of your home and move into another residence that you do not own, you may be able to claim an exemption from land tax.

The total period in which you receive rental income cannot exceed six months in a calendar year and the income can only cover rates, water, electricity and similar outgoings (but not mortgage repayments. This exemption will be allowed for a maximum period of 6 years.

Land tax on inheriting property

If a property was the deceased's principal place of residence it will be exempt from land tax:

for 12 months after the date of death, or

until the land is transferred to any person (other than the deceased person's personal representative or a beneficiary of the deceased person's estate),

whichever occurs first.

It is important to note that a person who lived with the owner immediately before the owners death and who continues to live in the property with the permission of the executor of the estate, the estate will not have any land tax on the property. The exemption applies only while the person continues to occupy the land as their main residence.

There may be planning opportunities in relation to this to minimise land tax on your estate, please contact us to discuss this.

Claiming the land tax exemption on 2 residences

If you acquire a new residence but you have not completed the sale of your former residence before 31 December, you may be able to claim an exemption for both residences.

An example of how the rules operate are:

• You sell your former home within six months after 31 December for the relevant year
   
• You buy your new home within six months before 31 December for the relevant year
   
• Income may only be derived on both properties in limited circumstances, please speak to us to confirm these situations
   
• You must also use and occupy the new residence as your principal place of residence by 31 December of the following year

We hope you have enjoyed reading this article and that this has provided useful insight in certain possibilities you might use to save on land tax. Please contact us for any assistance.


Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.