Land tax exemptions, whilst appearing to be straight forward, should be applied for with care, caution and careful consideration of the conditions. Serving as an example is a recent New South Wales Court of Appeal decision which reminds us that conditions for the primary production exemptions for land tax need to be approached with caution as subsequent revocation of an exemption can be costly for your client.
So, where did the landowner go wrong in applying the primary production exemption?
Background to the New South Wales Case
The landowners owned a large property for three identified purposes. Firstly, the land was argued to be used for thoroughbred horse breeding (the primary production purpose). Secondly, the land included a rental property of only 5 per cent of the entire parcel of land. Thirdly, the land maintained stocks of construction materials.
The Commissioner of State Revenue (Commissioner) took the view that the horse breeding wasn’t sufficient for the primary production exemption to apply. Therefore, the parcel was not exempt from land tax.
The landowners unsuccessfully appealed the Commissioner’s decision because the horse breeding was so minimal that it was found to be a mere hobby, and ancillary to another dominant purpose (namely, the rental property).
This case serves as a timely reminder to consider the conditions for the primary production exemption to apply in Queensland.
Queensland primary production exemption
If your client uses all or part of their land solely for the business of agriculture, pasturage or dairy farming (primary production), section 53 of the Land Tax Act 2010(Qld) (Act) provides an exemption from land tax which may apply.
Public Ruling LTA053.1.1 provides that “primary production” results directly from:
- the cultivation of the land; or
- the maintenance of animals for the purpose of selling them or their bodily produce; or
- the growing of plants in sand, gravel, or liquid, without soil and with added nutrients.
If only part of the land is exempt land, the Commissioner will apportion the taxable value of the land between the part used for primary production and the part used for other purposes.
Carrying on a business is the key
What is meant by “business of primary production” is ambiguous however the OSR ruling gives guidance that the Commissioner will consider the following factors when determining if there’s a “business of primary production”:
- whether the activity has a significant commercial purpose or nature;
- whether there are preparatory activities being undertaken, more than just an intention to engage in business;
- whether there is an intention to make a profit;
- whether there is repetition and regularity of the activity and associated processes;
- whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade practices in that line of business and industry;
- whether the activity is planned, organized, systematic, and carried on in a businesslike matter such that it is directed at making a profit;
- the size, scale and permanency of the activity; and
- whether the activity is better described as a hobby, a form of recreation and/or a sporting activity.
These factors are not alone conclusive and the relevance and weight to be given to each factor will depend on the facts of each particular case.
What should you do to ensure your client is properly applying the exemption?
If your client is currently relying on a primary purpose exemption, we recommend regularly checking to ensure:
- that the land is still used for a primary production purpose and that they continue to meet the conditions for the exemption; and
- the exemption continues to be applied by the OSR (i.e. the OSR hasn’t ceased applying the exemption to your client’s property).
If your client is paying land tax and not currently relying on an exemption, we recommend regularly checking:
- that the land tax is being properly assessed; and
- whether your client is eligible for any exemptions.
The author wishes to acknowledge Law Clerk Georgia Edwards for her contribution to this article.