Important land tax changes: Check your eligibility for Principal Place of Residence for Land Tax Exemption

17 December 2024 | Written by Caitlin Bowman | Personal Law, Conveyancing & Property

Key Takeaways

Revised PPR Exemption rules
Homeowners must own at least 25% of their property to qualify for the Principal Place of Residence exemption. This change impacts existing and new ownership structures.
Land tax threshold freeze
The general threshold of $1,075,000 and premium threshold of $6,571,000 will remain fixed until at least 2027, potentially increasing your liability as property values rise.
Higher surcharge for foreign owners
From 1 January 2025, the surcharge land tax for foreign owners increases to 5%, affecting all residential properties owned by foreign persons.

If you own property in New South Wales, significant change to land tax regulations are coming that may affect your financial position. The most notable update is the revised eligibility for the Principal Place of Residence (PPR) exemption.

Prior to February 2024, there were no minimum ownership percentage requirements to qualify for the PPR exemption. From 2026, if your ownership stake in your property is less than 25%, you may no longer qualify for the PPR exemption.

What is the PPR exemption?

The Principal Place of Residence (PPR) exemption is a key benefit that allows homeowners to avoid paying land tax on their primary residence.

Land tax is typically applied to investment properties or other taxable land holdings, but the PPR exemption protects the home you live in from these taxes.

Under the new rules, if either party owns less than 25% of the property, the exemption will no longer apply after 2026.

Changes you should know

Revised PPR Exemption Criteria – Act Now!

From 1 February 2024, to qualify for the PPR exemption, you must:

Own at least 25% of the property, either solely or jointly; and
Meet other standard PPR eligibility requirements

If you don’t meet this threshold:

You will be liable for land tax from 2025 onwards for new purchases or acquisitions.
For properties owned before 1 February 2024, the exemption will only continue until 2026.

An example:

A couple currently structures ownership of their family home for asset protection purposes. The wife owns a business with high liability risk, and holds only 1% of the property, while the husband, who works in a low-liability role, owns 99%.

This arrangement provides a layer of protection for the home against potential business-related liabilities and previously qualified for the PPR exemption. After the change, the couple would lose their exemption.

If you’re unsure whether your ownership qualifies, please contact us immediately. You may need to adjust your ownership structure to maintain the exemption.

Land tax threshold freeze

From 1 January 2025, the following thresholds will be frozen:

General threshold: $1,075,000
Premium threshold: $6,571,000

These thresholds will remain unchanged until at least 2027, which may result in more property owners exceeding the tax-free threshold as property values increase.

An example:

If your property is valued at $1,200,000 the taxable portion ($125,000) will incur land tax of approximately $2,020 annually under the general threshold. If your property increases a substantial amount each year and the threshold remains at the same value, your land tax liability will increase more substantially than if the threshold has also increased in alignment with property price increases.

Land tax is not payable on your principal place of residence but is payable on investment properties.

Increased surcharge for foreign owners

From 1 January 2025, the surcharge land tax rate for foreign owners will increase from 4% to 5%. This applies to all residential land owned by foreign persons and will be assessed annually.

What you should do

Review your ownership structure: If your ownership stake is less than 25% or you co-own property, you should consider if it is worthwhile restructuring to meet the new PPR exemption criteria.
Plan for land tax impacts: Frozen thresholds combined with rising property values may result in more owners exceeding the tax-free thresholds.
Seek financial advice: Ensure you understand the potential capital gains tax (CGT) implications of any changes, especially if you are transferring property shares to meet the ownership threshold.

We are here to assist with tailored advice and any adjustments you may need. Contact us today to ensure you’re prepared for these changes.

View an illustrative example

Emma and James purchased a property with a land value of $2,500,000 on 15/01/2024, designating it as their primary residence. Emma owns 20% of the property, while James owns 80%. Emma also owns an investment property with a land value of $1,200,000.

For the 2024 land tax assessment, Emma qualifies for the principal place of residence exemption on the jointly owned property. Her total taxable land value of $1,200,000 (from the investment property) exceeds the threshold of $1,075,000, making her liable for land tax on the excess value of $125,000. Her estimated 2024 land tax liability would be approximately $2,020, calculated as:

Land Tax = 1.6% × (Land Value Above Threshold) = 1.6% × 125,000 = 2,020

However, under the revised rules starting in 2026, Emma will no longer qualify for the principal place of residence exemption on the jointly owned property if her ownership share remains at 20%. As a result, her total taxable land value will increase to $1,700,000, comprising:

$500,000 (20% of the primary residence land value of $2,500,000), and
$1,200,000 (investment property).

Her estimated 2026 land tax liability would be approximately $9,960, calculated as:

Taxable portion: $1,700,000 – $1,075,000 = $625,000

Land Tax = 1.6% × 625,000 = 9,960

To avoid this liability, James could transfer additional shares of the primary residence to Emma, ensuring she meets the 25% ownership threshold. This adjustment would reinstate her eligibility for the principal place of residence exemption and potentially reduce or eliminate her land tax obligation. Emma should also consider seeking financial advice to understand the capital gains tax (CGT) implications of such a transfer.

Here’s a comparison table of Emma’s land tax liability pre-changes and post-changes:

Scenario	Pre-Changes (2024)	Post-Changes (2026)
Primary Residence Land Value	$2,500,000	$2,500,000
Emma’s Ownership Share	20%	20%
Investment Property Value	$1,200,000	$1,200,000
Taxable Land Value	$1,200,000 (investment property only, as PPR exemption applies to primary residence)	$1,700,000 (includes $500,000 from primary residence due to loss of PPR exemption)
Land Tax Threshold	$1,075,000	$1,075,000
Taxable Portion	$125,000 ($1,200,000 – $1,075,000)	$625,000 ($1,700,000 – $1,075,000)
Land Tax Rate	1.6%	1.6%
Land Tax Liability	$2,020	$9,960
Impact	PPR exemption protects Emma’s primary residence share, resulting in minimal tax liability.	Loss of PPR exemption for primary residence increases taxable land value, resulting in a significantly higher tax bill.

This table highlights how the rule changes directly impact Emma’s tax liability, emphasising the importance of restructuring property ownership to maintain eligibility for the PPR exemption.

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