A NSW couple has lost their Supreme Court case and have to pay land tax and penalties on a property that they considered their intended home for the four years from 2002 to 2006.

The imposition of land tax is set out in the Land Tax Acts for each state or territory; it is a State tax, not a Commonwealth tax.  All of the states and territories have similar policies exempting your home from the tax.  However, you will pay land tax where you own a second home, holiday house, investment properly or other land.

The land tax was levied under a now superseded section of the legislation but it is worth considering the current appendix to the NSW Land Tax Management Act which sets out the rules for the principal place of residence exemption (home exemption).

The property must be used by the owner as the owner’s principal place of residence “… and for no other purpose…”.  There are a small number of exceptions to the “no other purpose” part of this rule.

The residence must be on residential land or be comprised of one or more strata allotments.

The residence, and no other residential land, must have been continuously used and occupied by the owner for residential purposes since 1 July in the preceding year or from the time of purchase if it was after that.

The home exemption only applies to residential land and the definition excludes land “… from any part of which income is derived…” or other occupancies.

It is possible to be away from the home for the purpose of making home improvements.

There is an exception where you can have someone living in your home, apart from your family, in a room, two rooms separately let or a granny flat even if you charge rent.  One room in the home can be used for business purposes provided the overall use of the property is primarily for residential purposes and the business is primarily conducted elsewhere.

If you are moving to a new home and don’t earn income from either the new or the old home, you can claim the home exemption for both properties for one year only, subject to conditions.

After living in the home for at least six months, you can be away from your home for up to six years and still claim the land tax home exemption provided you don’t own another home and, broadly, if you don’t earn income from the home.  However, you can rent out the property for a six month period or receive only so much rent to cover rates, energy costs and maintenance.

Only one land tax home exemption can be claimed by the members of a family.  Non-dependent, grown up children are not considered to be members of the same family for this purpose.

The exemption is not available for land held in a discretionary trust.

You can claim the home exemption for unoccupied land for a period of four years immediately after you become its owner, if you intend to use the land for your home and start building works and don’t earn any income from the land.

The NSW couple lost their case based on the Supreme Court interpretation of this last clause.

WTB 2015/31

Land Tax Management Act 1936 (NSW) Schedule 1A

Andrew and Tony Lovett

11 February 2015

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Disclaimer: The information contained in this publication is for guidance only and we believe it is correct at the time of publishing. It should not be relied upon without obtaining professional advice regarding your circumstances. No responsibility for loss occasioned directly or indirectly to any person acting or refraining from acting wholly or partially upon or as a result of the material in this.

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