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Land comprising one parcel that is located wholly or partly within greater Melbourne and wholly or partly within an urban zone will be eligible for a primary production land (PPL) exemption if it is used solely or primarily for the business of primary production.

Further conditions apply to this land, depending on whether:

  • you own the land solely as a natural person,
  • the land is owned through a company structure,
  • the land is owned by a trustee of a discretionary trust,
  • ​the land is owned by the trustee of a superannuation trust,
  • the land is owned by a trustee of a trust (other than a discretionary trust) or a unit trust scheme, and
  • you own the land jointly with one or more other persons.

A common requirement of these further conditions is that the landowner or a relative of the landowner must be normally engaged in the primary production business in a substantially full-time capacity. If the landowner is a company or trustee of a trust, the qualifying shareholder or beneficiary or their relatives must meet this requirement. The table below outlines the ownership requirements.

This means the person must be extensively involved in the business on a full-time basis and it must be that person’s main and regular activity, taking up most of their time. They cannot be working in the business in a casual or part-time manner.

The Commissioner will determine a person’s engagement on a cumulative basis by taking into account all the primary production activities in which the person is engaged, provided they form part of the person’s broader genuine primary production business for which the land is solely or primarily used.

Example

Farm Pty Ltd is the owner of two lands located in an urban zone of greater Melbourne. One land has been used for cattle grazing and the other as an apple orchard. Mr and Mrs F wholly own shares in Farm Pty Ltd and they normally split their time engaged in the primary production equally across both lands.

The Commissioner would take the view that Farm Pty Ltd carries on a primary production business consisting of two separate primary production activities, namely cattle grazing and apple cultivation. The Commissioner would also take the view that Mr and Mrs F are normally engaged in a substantially full-time capacity in the primary production business, even though for each individual primary production activity, their engagement is not on a full-time basis. This is because these primary production activities together constitute the principal primary production business of Farm Pty Ltd for which the lands are primarily used.

If only part of the land is separately occupied and used primarily for the business of primary production, that part is eligible for the exemption.

Land owned by a natural person

Land owned by a natural person (i.e. not a company or a trustee of a trust) that comprises one parcel of land and is used solely or primarily in a business of primary production may qualify for the exemption. You must satisfy the following ownership and business requirements:

  • you carry on this business, and either:
    • you or a relative of yours is normally engaged in the business in a substantially full-time capacity, or
  • a relative of yours carries on the business, and either:
    • they or you are normally engaged in the business in a substantially full-time capacity.

‘Carrying on a business’ for land owned by a natural person

A business of primary production may be carried through one of a number of types of business structure, such as a sole trader, partnership, company or trust.

The Commissioner will take the view that a particular natural person is carrying on the business of primary production in relation to the land if the person effectively manages and controls that business, regardless of the type of business structure used.

Example

Y (a natural person) is the owner of land located in an urban zone of greater Melbourne. The land is used primarily for the purposes of a primary production business which Y manages and controls, and which is carried on through Z Pty Ltd. Y holds all of the shares in Z Pty Ltd. Y is normally engaged in a substantially full-time capacity in the business on the land. 

Given the circumstances, the Commissioner would take the view that Y is carrying on the business of primary production for which the land is used, even though Y carries on the business through Z Pty Ltd. As Y is also normally engaged in this business in a substantially full-time capacity, the land would be exempt.

Land owned by a company

Land owned by a company (not acting as a trustee) must satisfy the following requirements to be eligible for a PPL exemption.

Land requirements Company requirements Ownership requirements
  • One parcel of land, and
  • Used solely or primarily in a business of primary production
  • The company must act in its own right and not as the trustee of a trust
  • The company must carry on the business of primary production for which the land is solely or primarily used, as the company’s principal business
  • All shares must be held beneficially by natural persons - they cannot be held on trust, or by another company, and
  • If dividends have been paid to all shareholders over the past three years, they must have:
    • been paid in proportion to their holdings, and
    • 50 per cent or more of the dividends must have been paid to persons who are normally engaged in a substantially full-time capacity in the principal business of the company, or whose relative or relatives were normally engaged in a substantially full-time capacity in that business

      or
  • Where no dividends have been declared over the past three years, 50% or more of the issued share capital must have been held by persons normally engaged in a substantially full-time capacity in the principal business of the company, or whose relative or relatives were normally engaged in a substantially full-time capacity in that business

Example

Primary production land in an urban zone of greater Melbourne is owned by a proprietary company, J Pty Ltd. The land is used primarily for a business of primary production carried on by J Pty Ltd as its principal business.

The shares in J Pty Ltd are beneficially owned by K, L, M and N, relatives who each hold 25% of the shares in the company. However, only K is normally engaged in a substantially full-time capacity in the principal business of the company.

As the owner of the land is a proprietary company, the relevant requirement is that 50% or more of the issued share capital must have been held by persons normally engaged in the principal business of the company in a substantially full-time capacity, or persons whose relatives were normally engaged in that business. All of the shareholders meet this requirement: K is normally engaged in a substantially full-time capacity in the business carried on by the company, and L, M and N are relatives of K. Therefore 100% of the shares in the company are held by eligible parties and the land is exempt.

Land owned by a trustee of a trust (other than a discretionary trust) or a unit trust scheme

Land owned by a trustee of a trust (other than a discretionary trust) or a unit trust scheme must satisfy the following requirements to be eligible for a PPL exemption.

Land requirements Trustee requirements Ownership requirements
  • One parcel of land, and
  • Used solely or primarily in a business of primary production
  • The owner of the land is the trustee of a trust which carries on the business of primary production for which the land is solely or primarily used as the trustee's principal 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 or unitholders, or a relative of at least one of the beneficiaries or unitholders, is normally engaged in a substantially full-time capacity in the principal business of the trust

Land owned by a trustee of a discretionary trust

Land owned by a trustee of a discretionary trust must satisfy the following requirements to be eligible for a PPL exemption.

Land requirements Trustee requirements Ownership requirements
  • One parcel of land, and
  • Used solely or primarily in a business of primary production
  • The owner of the land is the trustee of a discretionary trust which carries on the business of primary production for which the land is solely or primarily used as the trust's principal business
  • Each specified beneficiary is a natural person

    or
     
  • At least one of the specified beneficiaries is a natural person and each of the remaining specified beneficiaries is either:
    • a charitable institution or a trustee of a charitable trust,
    • a company, all of the shares in which are owned by one or more of the specified beneficiaries of the discretionary trust who are natural persons, or
    • a trustee of a trust (except a charitable trust), all of the beneficiaries or specified beneficiaries of the discretionary trust who are natural persons, and
  • 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 principal business of the trust

A specified beneficiary, is a person who has been specified in writing under the trust deed as a beneficiary whom, by the terms of the trust, the whole or any part of the trust income or property may be distributed or vested in, in the event of the exercise of a power or discretion in favour of that person, or in the event that a discretion conferred under the trust is not exercised.

Example

Q Pty Ltd as trustee for the Q Discretionary Trust owns primary production land in an urban zone of greater Melbourne. Q Pty Ltd grants a licence to R, a natural person and specified beneficiary of the Trust, to conduct a primary production business on the land. While Q Pty Ltd derives income from this licence arrangement, it is not the trustee but R who carries on the business of primary production on the land.

As the owner of the land is a trustee for a discretionary trust, one of the relevant requirements is that the trustee of the trust must carry on the business of primary production, for which the land is solely or primarily used, as the trustee’s principal business. As Q Pty Ltd, as trustee for the Q Discretionary Trust, is not carrying on the business, it does not meet this requirement and therefore the land is not exempt

Land owned by a trustee of a superannuation trust

Land owned by a trustee of a superannuation fund must satisfy the following requirements to be eligible for a PPL exemption.

Land requirements Trustee requirements Ownership requirements
  • One parcel of land, and
  • Used solely or primarily in a business of primary production
  • The owner of the land is the trustee of a superannuation trust
  • All the members or beneficiaries (as the case requires) of the trust are relatives, and
  • At least one member or beneficiary (as the case requires) of the trust is normally engaged in a substantially full-time capacity in the business of primary production for which the land is solely or primarily used

Superannuation trusts are defined in the Land Tax Act 2005 and include a complying superannuation fund or complying approved deposit fund.

Land owned jointly by two or more persons

The exemption may also apply to land owned jointly by two or more persons that comprises one parcel of land and is used solely or primarily in a business of primary production. Each joint owner must meet the relevant requirements for that type of landowner.

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