In brief - If you purchase land for a new home in NSW, you can normally claim the "principal place of residence" (PPR) exemption from land tax while it is unoccupied, but you must not claim the PPR exemption for another family home in the same tax year and you must complete your new home within four years
This article considers under what circumstances you may be eligible for this exemption, and relates to land tax years from 2017. The exemption was available in prior years, but different criteria apply.
Exemption from land tax - principal place of residence (PPR) - your home
Land tax is an annual tax levied at the end of the calendar year on all property that you own. Certain concessions and exemptions apply.
Your PPR is exempt from land tax. Your PPR is the one place that you continually "use and occupy" as your residence among all places globally. It is more commonly thought of as your "home". We refer to it as such. (Refer also to the NSW Government's Revenue Ruling LT 082v5 The principal place of residence exemption.)
Concession for unoccupied land intended to be your home
You may claim a PPR exemption for "unoccupied land" that you own if you hold an intention to occupy it as your home after completing building works.
This exemption applies only if:
Your land is unoccupied because you intend to build or are building your home.
No income is derived from your land after you have "physically commenced" work on your home.
The intended use and occupation of your land is not unlawful (i.e., is permitted by the relevant planning laws of local and state government authorities).
Unoccupied land includes both:
Principal place of residence exemption period
The exemption period is a maximum of four tax years. There are no extensions available.
The exemption period commences:
on the first day of the first tax year after you became the owner of your land (the "tax year" starts on 1 January and ends on 31 December); or
if your land is occupied by any person (e.g., a tenant) for residential purposes, the start of the first tax year after that person ceases to occupy your land.
For example, if you purchase land that is not occupied by any person and become the owner on 1 August 2018, the exemption period commences on 1 January 2019.
Land that is occupied but subsequently ceases to be occupied for residential purposes
If your land is occupied but ceases to be occupied, the Chief Commissioner must, at the end of the first tax year of your exemption period, be satisfied that you will take or have taken "significant steps" to enable building work for your home to physically commence on your land. The preparation and lodgement of a development application is generally considered a significant step.
For example, if you took ownership of your land in February 2018 with a tenant, and your tenant leaves so that your land became unoccupied in March 2019:
Your exemption period commences on 1 January 2020.
The Chief Commissioner must, by 31 December 2020, be satisfied that you will take or have taken "significant steps".
If you lodged your development application by 31 December 2020, you have likely taken "significant steps". If you have not, you may be challenged and risk the revocation and reassessment of any concessions received for the 2020 land tax year.
You (or another owner) must, before the end of the exemption period:
If you do not comply with the occupation requirement, the Chief Commissioner may revoke the concession for each tax year for which it has previously been allowed and your land will be reassessed for land tax for all those years.
When does the concession not apply?
The concession does not apply if:
You, or any member of your family, is entitled to claim the PPR exemption for another residence. A "family" consists of a cohabiting spouse (married or de facto) and any dependent children (including step children). Children are "dependent" if under 18 years of age and not legally married.
Under state planning laws more than two dwellings can be lawfully built on your land, including any adjoining land that you own.
When has building work physically commenced?
Building work is normally considered to have "physically commenced" when demolition has commenced, footings excavated or other such preparatory work is undertaken.
It is insufficient to create a bore hole for soil testing, remove water or soil for testing, carry out survey work, conduct acoustic testing, remove vegetation and mark the ground to indicate how land will be developed.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2023.