There is currently speculation that the airbnb economy will be targeted under new land tax measures. This article considers the current land tax position in NSW with respect to airbnb activities.
Whether this is true or not (the article quotes the Tasmanian State Treasurer denying there is a deliberate targeting of airbnb practices) and putting aside speculation that other States and Territories may follow suit, it is helpful to revisit the current principal place of residence land tax exemption in NSW.
How does land tax generally work in NSW?
Broadly, the land tax framework in NSW operates by taxing landowners on the “taxable value” of land in NSW which is not subject to an exemption and where the landowner’s taxable value exceeds the land tax threshold as at 31 December each year. The current threshold for the 2017 land tax year is $549,000.
The NSW principal place of residence exemption
It is beyond the scope of this article to provide a detailed explanation of the land tax exemption for a principal place of residence.
Generally, land will not be considered to be the principal place of residence unless the owner has continuously used and occupied the land for residential purposes (and no other purpose) since 1st July in the year preceding the relevant taxing date (i.e. 31st December).
The exemption rules contain a concession which permits dual occupancy residences and the earning of income from a second occupancy in limited circumstances (e.g. main dwelling + granny flat).
The airbnb stinger
There are probably quite a few unsuspecting landowners across NSW who have inadvertently contravened the concessional provisions in the exemption rules by either:
- using the entirety of what would otherwise be their principal place of residence for airbnb purposes in discrete booking periods (e.g. offering the entire premises for any particular period of time); or
- using more than the concessional areas permitted in the exemption rules for airbnb purposes (e.g. letting a granny flat in addition to using a room within the main dwelling for airbnb purposes).
In such circumstances, the principal place of residence exemption will not apply for the applicable land tax year and this may result in material land tax liabilities. Note however there may be certain situations which the OSR will extend the concession despite the land use otherwise failing to satisfy the exemption rules e.g. transient letting use during peak holiday seasons which do not involve residential tenancy agreements.
The legal issues attributable to the airbnb economy are well known and remains a problematic area which would benefit from statutory intervention; in contrast, the land tax exposure is a bit of a sleeper issue which is bound to awaken when data sharing occurs between Federal and State/Territory revenue authorities.
Adverse land tax exposure should be assessed preemptively and land tax returns filed where necessary to avoid the imposition of penalties and interest. Landowners who have participated or are contemplating participation in the airbnb economy are advised to seek professional advice on their particular circumstances.
This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article.