Issue 5 of our State Taxation Series considers the newly amended section 67 of the Land Tax Act (Act) relating to the primary production land (PPL) land tax exemption.

The amended provisions in section 67 of the Act received Royal Assent on 19 November 2019. As of 20 November 2019, these amended provisions came into operation.

Other than the requirements that the land comprises one parcel that is wholly or partly in greater Melbourne, and wholly or partly in an urban zone, the two main requirements are whether:

  • The land is used solely or primarily for the business of primary production; and
  • The owner of the land meets the requirements in subsection 67(1)(b).

Business of primary production

Section 67 of the Act stipulates that for the exemption under section 67 to apply, the land must be solely or primarily for the “business of primary production”.

The satisfaction of the “business of primary production” requirement in section 67 involves a much higher threshold than the “purpose of sale” requirement in section 65, necessitating proof indicating a primary production business being carried on.

The distinction between “purpose of sale” and “business of primary production” may seem insignificant at first instance. However, the fundamental difference to these statutory requirements is that the former does not require evidence of profit, whereas the latter does, among other factors.

In ascertaining whether a business is carried on; objective and subjective references to the nature and extent of the activities under review, purpose of the individual engaging in the activities, whether the activities are systematic and organised, scale of the activities, and commercial character of the transactions are all important factors.

Ownership Requirements

The ownership requirements for the exemption are dependent on the type of ownership and the legal capacity of the owner(s) of the land:

s 67A – Non-trustee natural person
The owner:

  • carries on the business of primary production.
  • Normally engaged in a substantially full-time capacity in that business or has a relative who is normally so engaged

A relative of the owner

  • Carries on the business of primary production.
  • Either is normally engaged in a substantially full-time capacity in that business or is not normally engaged in a full time capacity in that business, but the owner is normally so engaged.

s 67B – Non-trustee proprietary company

  • The company carries on the business of primary production.
  • The principal business is that business.
  • All the company’s shares are beneficially owned by natural persons.
  • 50% of dividends distributed, or shares held are respectively paid to or owned by persons normally engaged in a substantially full-time capacity in the business of primary production or whose relatives are so engaged

s 67C – Trustee of superannuation trust

  • All the members or beneficiaries of the trust are relatives.
  • At least one member or beneficiary of the trust is normally engaged in a substantially full-time capacity in the business of primary production.

s 67D – Trustee of a discretionary trust

  • The trustee carries on the business of primary production.
  • The principal business of the trust is that business.
  • Either each specified beneficiary is a natural person, or at least one beneficiary is a natural person and each non-natural person meets the requirements in subsection (2).
  • Either at least one of the specified beneficiaries or a relative of at least one of the specified beneficiaries is normally engaged in a substantially full-time capacity in the business of primary production.

s 67E – Trustee of a trust (other than discretionary or superannuation trust) or unit trust scheme

  • The trustee carries on the business of primary production.
  • The principal business of the trust or unit trust scheme is that business.
  • Each beneficiary of the trust or unitholder is a natural person who is entitled under the trust deed to an annual distribution of the trust income.
  • At least one of the beneficiaries of the trust or unitholders or a relative of at least one of the beneficiaries or unitholders, is normally engaged in a substantially full-time capacity in that business.

s 67F – Joint ownership

  • Each joint owner must meet the requirements for that type of owner in sections 67A, 67B, 67C, 67D or 67E.

These new amendments now make it a requirement that there is a connection between the landowner and the business of primary production, where those landowners carry out the business of primary production and where the principal business of the landowner is that business.

It is welcoming to note that the current provisions have completely removed the ambiguous requirement for primary production “of the type”, in which our firm has had experience litigating with the State Revenue Office.

However, the new legislative provisions also pose its own set of uncertainties due to it being unclear as to what exactly is meant by, or the ambit of the words “that business”.

At present, the only guidance is that from the Explanatory Memorandum explaining that the amendments have the effect of reforming the exemption to require a connection between the landowner and the business of primary production conducted on the land.

Our State Taxation Team at Pointon Partners regularly provides advice on primary production matters and have also successfully assisted numerous clients with PPL disputes and reviews undertaken by the State Revenue Office.

NB: Landowners who own land currently exempt under section 67 which has been exempt under this provision may no longer be exempt, and land tax may be applicable for the 2020 land tax year onwards.

Please contact Tony Pointon, Amelita Hensman, Thomas Abraham or Andrew Pointon on (03) 9614 7707 if you wish to discuss this article or any State Taxation matter.

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