Renovation poses land tax risk
Renovators who move out of their home during the works risk being charged land tax in some circumstances, according to McCullough Robertson lawyers' interpretation of a recent court ruling.
The Queensland Land Court has ruled a Gold Coast couple didn't have to pay land tax on their own home for a period of time when they moved out while it was being renovated.
The ruling has implications for renovators who need to move out of their home to renovate, McCullough Robertson says, raising land tax issues that aren't normally in the minds of renovators.
The couple, the Jackmans, lived on prestigious Hedges Avenue on the Gold Coast, and had done for many years. When they decided to renovate their home, they struck a situation familiar to many renovators - the project ran over time for reasons beyond their control.
The works took nearly a year longer than planned and the Jackmans ended up moving out and renting an apartment because they found it too difficult to live in their home during the renovation process, and they needed access to a home office.
They lived in the unit until the renovations were complete, and then moved back into their Hedges Avenue property.
But because they hadn't been living in the house on June 30, the critical billing date for land tax, Queensland's Commissioner for Land Tax took the view that the principal place of residence (PPOR) exemption for land tax shouldn't apply, and the pair received a land tax bill.
The Jackmans challenged the bill in the Land Court, McCullough Robertson lawyers write in a recent briefing note.
To qualify as a PPOR for land tax purposes in Queensland, McCullough Robertson says one of two requirements must be satisfied:
- the land was used continuously as a residence for the six months prior to the June 30 on which the assessment was raised, or
- the commissioner is satisfied that the land is being used as the taxpayer's PPOR.
The court noted the significance of the wording not requiring 'occupation' but referring to the 'use' of the land.
"Whilst acknowledging that the Hedges Avenue property was not physically occupied, the court found that to prevent the PPOR deduction being claimed in circumstances beyond the control of the owner would frustrate the purpose of the law," the McCullough Robertson briefing note says.
"Here, the occupancy of other places was on the evidence, temporary and forced on the owners by circumstance. The Jackmans had always regarded the Hedges Avenue property as being their home. Apart from the extent necessary to allow a builder on site they had not handed over possession, and the Hedges Avenue property was used for other usual purposes associated with a home - for example, for the receipt of mail and being listed on electoral roll details."
The court ruled in the Jackmans' favour, finding that the property was excluded for land tax purposes.
McCullough Robertson says in light of this decision vacating your main residence for renovation purposes is "not without risk" on the land tax front.
It advises renovators to keep the following five factors in mind when making the decision to move out of their home.
- the length of time a property has been used as a PPOR prior to the commencement of any substantial renovations;
- the court was very careful to find that the renovation timetable was out of the Jackmans' control, not planned;
- careful emphasis was placed on the fact that there was a substantial renovation, not demolition or construction, of the house in question;
- the court drew an important distinction between the land tax legislation in New South Wales and Queensland in that the owner is only required in Queensland to 'use' the land as the taxpayer's PPOR as opposed to the owner being required to 'use' and 'occupy' the land in New South Wales in order to obtain the exemption; and
- it's possible, without satisfying the commissioner, to retain the residence status so long as continuous use of the property occurs prior to the relevant June 30 on which annual land tax is assessed.
