TAX FILES
Principal Place of Residence exemptions of the Land Tax Act PAUL INGRAM, MINTER ELLISON
T
he Principal Place of Residence (PPR) exemptions of the Land Tax Act 1936 (SA) (Act) are relatively complex, and raise some tricky issues in practice. There also appears to be some confusion as to how they have been affected by the Land Tax (Miscellaneous) Amendment Act 2019 (the Amending Act). This article will summarise the key points.
POSITION BEFORE THE AMENDING ACT a. The Land Tax Act contains a series of different PPR exemptions: i. complete exemption: • section 5(10)(a) – the base exemption; • section 5(10)(ab) –where the relevant building has been destroyed or rendered uninhabitable; • section 5(10)(ac) – where the relevant building is being renovated or rebuilt; • section 5(10)(ad) – which appears to cover newly acquired land that contains a building that is being renovated or rebuilt; • section 5(10)(ba) – hotels, motels, serviced holiday apartments or similar where more than 75% of the total floor area of all buildings on the land is used for the owner’s PPR; ii. partial exemptions where more than 25% but less than 75%, of the total floor area is used for a business or commercial purpose: • section 5(10)(b) – the base exemption; • section 5(10)(bb) – an additional exemption for hotels, motels, serviced holiday apartments or similar. Each exemption has its own eligibility criteria and qualifications, and will need to be carefully considered. Refer in particular sections 5(10a) to 5(12a) inclusive.
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The term ‘principal place of residence’ is not defined. However, the Commissioner’s ‘Guide to Legislation’ states as follows (at page 18): ‘A principal place of residence is where the property: – is the primary residence of the natural person owner(s); – is the natural person owner(s)’s usual abode; (i.e. where they eat and sleep); and – is occupied on an ongoing basis and occupation is not merely transitory or an intention to occupy.’ b. Importantly, where there are two or more joint owners, the house only needed to be the PPR of one of those joint owners. However, this was subject to the ‘minority interest provisions’ of section 13A, which: • automatically ignored interests of 5% or less (subject to the Commissioner’s satisfaction that the creation of the interest was for purposes unrelated to reducing land tax); • gave the Commissioner the power to ignore interests of greater than 5% but less than 50%, if satisfied that one of the purposes for the creation of the interest was to reduce land tax. c. All of the exemptions required the relevant owner to be a natural person. However, the term ‘natural person’ did not exclude a natural person holding in his or her capacity as trustee. Accordingly the exemption could be claimed where one of its owners was a natural person trustee who can pass the PPR test. But it could not be claimed where the relevant owner: • was a natural person trustee who could not pass the PPR test (ie. because he or she did not reside at the property, even though another beneficiary did so); or • was a corporate trustee.
POSITION AFTER THE AMENDING ACT a. The Amending Act does not change the wording of the PPR exemptions themselves. However, there are a couple of other changes that need to be noted (see below). b. Where there are two or more joint owners, the house still only needs to be the PPR of one of those joint owners and while the minority interest provisions of section 13A have been repealed. New section 5AA re-enacts them (with some differences in wording) for the purposes of the PPR exemptions only. Accordingly, the position summarised in paragraph 1(b) is essentially unaltered. c. But the Amending Act actually expands the scope of the PPR exemptions in relation to trusts. While it is still not possible to claim the PPR exemptions where the trustee is either: i. a corporate trustee; or ii. a natural person trustee who does not satisfy the PPR test, it may be possible to access the PPR exemptions where the following conditions are satisfied, namely: iii. in the case of land held by a discretionary trust- the interest was held in the discretionary trust as at midnight on 16 October 2019, the corporate trustee or non-qualifying natural person trustee nominates a ‘designated beneficiary’ under section 13A on or before 30 June 2021, and that designated beneficiary can pass the PPR test; iv. in the case of land held by a unit trust or fixed trust – the corporate trustee or non-qualifying natural person trustee makes a nomination under section 12 or 13 (as relevant), and all unitholders/beneficiaries can pass the PPR test. The provisions achieve this by deeming the designated beneficiary/unitholder/
