In the ever-evolving realm of taxation, the NSW State Budget 2023/24 has introduced significant changes to the family home exemption from land tax. This alteration, outlined in the Land Tax Management Act 1956 (NSW) (LTMA), warrants a closer examination of the existing regulations and the impending modifications.
The Family Home Exemption: A Recap: Historically, the LTMA provided an exemption for all owners of land used as the Principal Place of Residence (PPR) by at least one owner from land tax. This exemption covered both residential land and strata lots, making it a comprehensive benefit for homeowners.
Introducing Minimum Ownership/Occupancy Requirement: The recent enactment of the Treasury and Revenue Legislation Amendment Act 2023 (NSW) No 26 brings about a pivotal change by introducing a minimum ownership/occupancy requirement for the family home exemption. According to clause 15(1) of Sch 1A of LTMA:
"A person is not entitled to a principal place of residence exemption in relation to land unless all the persons who use and occupy the land as a principal place of residence together own at least a 25% interest in the land."
Analyzing the Ramifications: The essence of this amendment lies in ensuring that, for the family home exemption, at least one person who uses the home as their principal place of residence must own a minimum 25% interest in the land. Notably, owners with less than a 25% interest can maintain the exemption for the 2024 and 2025 land tax years, with the 25% ownership requirement becoming effective from the 2026 land tax year. This adjustment holds implications for scenarios involving joint property ownership and familial contributions to property purchases.
Examples Illustrate Real-World Impact: Consider the scenario where parents contribute to their children's first home purchase, commonly known as the 'Bank of Mum and Dad.' The new requirement mandates that the child, who will be the owner-occupier, must hold at least a 25% ownership interest for the parents to claim the PPR land tax exemption.
Similarly, families combining resources to acquire a property for joint occupancy must ensure that all family members with an ownership interest of at least 25% continue to occupy the property as their principal place of residence. Failure to meet this threshold could render the property liable for land tax as an investment property.
Comparing with CGT Exemption: It's crucial to distinguish between the NSW land tax exemption and the Capital Gains Tax (CGT) exemption for the family home. While the former pertains to annual land tax, the latter concerns the profit made on the disposal of the property.
NSW Land Tax Exemption: No land tax is payable if owners with a minimum 25% ownership interest collectively occupy the land as their principal place of residence. All owners may claim the exemption, irrespective of owner-occupancy.
CGT Exemption: No CGT is payable on the profit from the disposal of the main residence for owner-occupiers. This exemption exclusively applies to owner-occupiers, with non-occupier owners subject to CGT on the profit from their ownership interest's disposal.
In essence, these changes introduce a nuanced layer to family home exemptions in land tax, necessitating careful consideration for those involved in joint property ownership or contributions to home purchases.
Source: Anthony J Cordato, Principal at Cordato Partners and Revenue NSW, gearing up for the 2024 land tax year in their media release dated 1 November 2023, retrieved on 17 January 2024.
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