Are you paying land tax on vacant land? If you conduct primary production activities on land in Queensland, you may be eligible for the primary production exemption from land tax. If you own vacant land, or land earmarked for future development, we can assist you.
Who is this article relevant to?
- Property developers;
- Landholders; and
- Persons engaged in agriculture and primary production activities.
Primary production exemption
Under the Land Tax Act 2010 (Qld) there is an exemption which applies to land (or a part of land) that is used solely for the business of agriculture, pasturage or dairy farming (primary production purpose).
Land is exempt from land tax if it is used for a primary production purpose and is owned by an eligible entity. Even if you are only using part of your land for primary production, the taxable value of the land can be apportioned so that you are still able to get the exemption on the part of your land which is being used for primary production.
Which entities are eligible?
The following entities are eligible for the exemption:
- An individual, other than a trustee or absentee;
- A trustee of a trust, if all beneficiaries of the trust are persons mentioned in (1), (3), or (4);
- A relevant proprietary company; or
- A charitable institution.
Individuals
If the landholding entity is an individual, he or she will be eligible as long as he or she does not hold the land as a trustee for a trust, and is not an ‘absentee’. In general, an absentee means a person who does not ordinarily reside in Australia.
Trustees
If the landholding entity is a trustee which holds the land for a trust, the trustee will be eligible for the exemption as long as all beneficiaries of the trust fall into one of the following categories:
- An individual, other than a trustee or absentee;
- A relevant proprietary company; or
- A charitable institution.
Relevant Proprietary Companies
If the landholding entity is a company, it must be a ‘relevant proprietary company’ to be eligible for the exemption.
Relevant proprietary company means a proprietary company –
- That is not an exempt foreign company; and
- In which no share or interest is held whether directly or through interposed companies or trusts, by a body corporate other than a proprietary company that is not an exempt foreign company.
A landholding company in which there are foreign interests or stakeholders may not be eligible for the exemption. We can assist you to determine whether your entity is eligible.
Public companies are not eligible for the exemption.
Charitable Institutions
Landholding entities which are charitable institutions are also eligible for the exemption.
Note that the exemption does not apply to land owned by the manager of a time sharing scheme.
How much of the land needs to be used for primary production?
For the purposes of this exemption, if part of the land is exempt land, the Commissioner must apportion the taxable value of the land between use for a primary production purpose and use for any other purpose.
This means the exemption will only apply to that part of the land which is used solely for a primary production purpose. If a development is to be conducted on part of a parcel of land, whilst another part of the land is to be used for a primary production business, the exemption will not apply to the parcel on which the development is being conducted, but will apply to the part where primary production activities are conducted.
Where development activities are being conducted on increasingly larger portions of land over time, land tax values and liabilities will be adjusted accordingly. Set out below is an example scenario which outlines how land tax will be calculated when an exemption is in place, and how an exemption can change over time as development activities expand.
Example scenario
Let’s assume Lots 1, 2 and 3 each have a taxable value of $1,000,000, being a total taxable value of $3,000,000 for the entirety of the land depicted. If no exemption is in place, the owner of the land will need to pay land tax calculated on the full land value of $3,000,000.
Let’s now assume that, in 2015, development activities commence on the whole of Lot 3, and a primary production business commences on the whole of Lots 1 and 2. The owner obtains an exemption in respect of the land on which the primary production business is being conducted (Lots 1 and 2). The taxable value of the land will now be $1,000,000 instead of $3,000,000 (because Lots 1 and 2 are exempt). Since the development activities are not exempt, the owner still pays land tax on the value of Lot 1.
If in 2016, the owner begins conducting development activities on the whole of Lot 1, (in addition to Lot 3), the owner would be obliged to notify the OSR of its activities, and the exemption would no longer apply to Lot 1. The taxable value of the land for 2016 would be $2,000,000 (because only Lot 2 is exempt as it is the only lot on which primary production activities are now being conducted).
Alternatively, if in 2016, the owner begins conducting development activities on only half of Lot 1, and continues to conduct a primary production business on the other half of Lot 1, it will only lose the exemption in respect of half of Lot 1. In this situation, the taxable value of the land would be $1,500,000 (because primary production activities are being conducted on Lot 2 and on half of Lot 1).
Land used solely for the business of agriculture, pasturage or dairy farming
Generally, the words agriculture, pasturage and dairy farming refer to production resulting directly from either:
- The cultivation of the land;
- The maintenance of animals for the purpose of selling them or their bodily produce, including their natural increase; or
- The growing of plants in sand, gravel, or liquid, without soil and with added nutrients i.e. hydroponics.
The primary production activity must be conducted as a business. To determine the existence of a business, regard is had to:
- Whether the activity has a significant commercial purpose or character;
- Where there is more than just an intention to engage in a business (the extent of preparatory activities undertaken is relevant – relevant activities may include clearing of land, fence and dam constructions etc);
- Whether there is an intention to make a profit as well as the profitability of the activity;
- Whether there is repetition and regularity of the activity;
- Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
- Whether the activity is planned, organised and carried on in a businesslike manner 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 or a sporting activity.
A combination of the above factors may indicate that the primary production operation in question is a business. The relevance and weight to be given to each factor will depend on the circumstances of each particular case.
If you think you may be eligible for the primary production exemption from land tax, please contact us. We can assist you to:
- Assess your eligibility;
- Locate a suitable agricultural tenant for your property; and
- Apply for the primary production exemption from land tax.
This article was written by John Caravousanos, Partner and Hayley Di Bella, Solicitor.
P: +61 7 3169 4792
E: jcaravousanos@hwle.com.au