In the decision of Aveland Pty Ltd and the Commissioner of Taxation [2013] WASAT 180 (Aveland Pty Ltd), the Deputy President of the State Administrative Tribunal held that a land tax exemption would apply to the whole of the land being considered, even though only part of the land was being used for an exempt purpose.  Following this decision, and an informal review of the land tax exemptions by the Office of State Revenue and Department of Treasury, the Taxation Legislation Amendment Bill (No. 2) 2014 (WA) was introduced into the Legislative Assembly of the Western Australian State Parliament on 23 October 2014.

In this alert, Special Counsel Justin Byrne discusses the proposed changes and their effect if the Bill is passed.

The Bill seeks to amend both the Land Tax Assessment Act 2002 (WA) (LTAA) and the Duties Act 2008 (WA).  If passed, the Bill will reinstate the position prior to the decision of Aveland Pty Ltdon partial exemptions.  Further, it will extend the ability to claim a land tax exemption for primary producers where the primary produce is sold in a converted state.

Key points

  • A primary producer who sells their produce in a converted state may now be eligible for a partial land tax exemption under the LTAA
  • The current one third income test, and related 50% concession test, will be removed and a ‘primary production business test’ will apply to be eligible for the land tax exemption.
  • For non-rural land, the land tax exemption will extend, in certain circumstances, to related family members’ use of the land, and certain related family companies, trusts and unit trusts.

The Bill, if passed, will cause the following changes:

  • an exemption will apply to land used for primary production, even where the produce is sold (or intended to be sold) ‘in a ... processed or converted state’.   For example, this means that where a piece of land is used to grow fruit, say oranges or grapes, which is then converted into a juice or a wine by the primary producer before it is sold, the exemption will only apply to the part of the land on which the fruit is grown.  The Explanatory Memorandum considers that the Commissioner of State Revenue had previously applied the exemption in this way, but in light of the Aveland Pty Ltd decision, the amendments are to ensure the exemption continues to be applied in this manner.
  • the one-third income test and the related 50% concession, where the one third income test is failed, will be replaced with a primary production business test which will be required to be considered to determine whether the land is being used to run a ‘primary production business’, currently referred to as a ‘rural business’.  The test is based on the common law and will include various factors which all must apply for the land to be determined to be used for a primary production business.  The factors include, for example, whether, where the land is used for primary production, the use of the land ‘has a significant and substantial commercial purpose or character’.
  • for non-rural land, being land which is in the metropolitan region or outside the region but not zoned for a rural purpose, the owner-user rule (being that the property must be used by the owner of the land for a primary production business) will be extended to allow the exemption to apply where the land is used for the primary production business by a person related to the family owner, where the owner of the land is considered to be a family owner.  This will mean that the exemption will apply, for example, where a mother and father own the land and the son uses the land for a primary production business.  However, the exemption would not apply where the land is owned by a family member and it is being used by a company which has a shareholder who is not a family member of the owner.  The definition of family member will expand to align with the definition under the Duties Act 2008.
  • the use of the term ‘rural business’ in the LTAA will be replaced with ‘primary production business’ and the definition will be expanded to align with the current definition under the Duties Act 2008.
  • there will only be one avenue of appeal regarding the land tax exemption, which will be to the State Administrative Tribunal.  An appeal to the Minister for Finance on matters of discretion will no longer be available and instead all matters will be dealt with by the SAT.

The amendments to the LTAA, if passed, will commence on 1 July 2014, so as to apply to tax matters for the 2014 / 2015 financial year.  The amendments will, however, have effect from 1 July 2003 but will not act retrospectively to impact matters which were in dispute at the time the Bill was announced or had already been decided by the State Administrative Tribunal.