Land Tax Exemption – Dual PPR

Owning your own home is every Australian’s dream. Owning a holiday home has also been a dream for many.

Well, it certainly was.

With various changes over the years to land tax rules, it’s also now becoming a very expensive dream.

In saying that, the Victorian government does offer a number of tax exemptions for homeowners.

1.    Principal place of residence (PPR).

Your principal place of residence — being the place where you live the majority of the financial year — is exempt from tax.

If your residential property is all the land you own, great! That means there is no land tax for you to worry about. If, however, you also use that property for your business, the exemption only applies to the area exclusively used for residential purposes.

But what about Victorians who own more than one property?

This may include a holiday home by the sea, maybe an apartment in the city or perhaps a property that Mum and Dad own that the children live in or a property that their elderly parents may occupy. The list can go on…

We get many questions from our clients about what this exemption means for their tax, whether or not they can have two or more properties qualify as a principal place of residence for tax purposes, and how they can minimise the amount of land tax they pay per tax year.

As a result, I thought it would be a great idea to address some of the most common questions that we receive.

a)    How is land tax calculated for joint ownership?

If you own land with another party — a spouse or partner, the process for calculating land tax is a little different. If all the jointly owned land you own is exempt or does not meet the land tax threshold, you will not be assessed.

b)    Can I claim a principal place of residence exemption?

Generally, when you buy a property, your solicitor or conveyancer will (or at least should) request you to complete a Notice of Acquisition Land Form to Land Use Victoria. This will tell the SRO that you’re intending to use the property as your main residence or PPR. As a result, an automatic exemption for the relevant tax period will be applied.

c)    What requirements must be met for a PPR exemption?

In order to be exempt from land tax, you must live on the land for at least six continuous months in the previous financial year from 1 July. In certain cases — for example, if you have purchased or moved into a property after this date — the government may defer your payment for six months and reassess your eligibility.

A certificate of occupancy must also be issued on the legal residence to show that it is fit for living in.

d)    Partial exemption.

A partial exemption applies in certain circumstances:

• If part of the land is used for business activities, you can only claim an exemption on the part of the property that is solely used as a residence.
• If the land contains a separate residence (for example, a granny flat, unit or house) that the owner leases, land tax can be assessed on the income. If the owner only receives nominal payments for board or a member of the family lives in the space and contributes towards utilities and other expenses, they may still qualify for the exemption. Otherwise, it will only apply to the land used solely as a residence for the owner/trustee.
• If only one vested beneficiary of the trust lives at the property, only that person will receive an exemption on their share.

e)    Special circumstances.

If you can no longer live in your principal place of residence due to circumstances outside of your control, you may still be exempt from land tax. This may include:

• The owner is hospitalised,
• The owner is moved to a residential care facility,
• The owner lives with a carer who looks after their daily needs,
• The home is no longer safe due to outside circumstances (bushfires, flooding, accidental or malicious damage, etc.) and the owner has no other land that could be used as a PPR.

Also, if you are temporarily living or working overseas, you may also be able to claim an exemption if you have previously obtained an exemption for the property or lived in the residence for at least six months (consecutive). When submitting your case, you must show that you intend to use the property as your primary residence upon your return and that no other land in Australia is nominated as your main residence. Additionally, you must show that you did not rent your property for a period of six months or more during your absence in the year before assessment.

f)      Can more than one property have an exemption from land tax?

This is possible in very limited circumstances where you may be able to claim a dual principal place of residence exemption.

ü  Purchasing a new principal place of residence.

This is generally used to help the transition from an old place of residence to a new property. If an individual/trustee purchases a property that they intend to use as their new residence but have not moved out of their old house before 31 December of the previous assessment year, they can apply for a dual PPR exemption.

In saying all of that, there are some conditions:

·      The property may not be rented out the owner,

·      The move into the new property must happen within a year of purchasing it and must use it as their main residence for a period of at least six months.

ü  Selling your old principal place of residence.

Similar to purchasing a new property, this dual exemption is intended to facilitate the transition between one residence to another. If the owner or trustee has moved into a new residence but cannot sell the old property before 31 December of the previous assessment year, they may claim an exemption on both properties.

Land tax can be quite complicated, which is why it is always best to seek out expert advice if you are unsure. Need more information on the dual PPR land tax exemption? The SRO website can be used, or our experts will always be more than happy to assist.

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