Land tax - Exemption for primary production land
|Issue date||22 December 2022|
|Date of effect||2023 land tax year|
The Land Tax Act 2005 (the Act) imposes land tax on all taxable land in Victoria each year unless an exemption or concession applies. Depending on the location of the land, Division 2 of Part 4 of the Act) exempts land that is used primarily for primary production or used solely or primarily for the business of primary production. An exemption may also apply for land being prepared for use for primary production.
The following provisions in the Act set out the exemption available for primary production land
- Section 65 provides an exemption for land located outside greater Melbourne which is used primarily for primary production.
- Section 66 provides an exemption for land if the Commissioner of State Revenue (Commissioner) determines that the land comprises one parcel that is located wholly or partly in greater Melbourne, but no part of it is in an urban zone and the land is used primarily for primary production.
- Section 67 provides an exemption for land located wholly or partly in greater Melbourne, that is wholly or partly in an urban zone, where the Commissioner determines that land is used solely or primarily for a business of primary production.
- Section 68 provides an exemption for land that is being prepared for use primarily for primary production where the land will become exempt under section 65, 66 or 67 within 12 months or a longer approved period after the commencement of the preparation activities.
Greater Melbourne is defined in section 64(1) and it consists of the area within the Melbourne metropolitan municipal Councils (as listed in Part 1 of Schedule 2) that is within the urban growth boundary (as specified in a planning scheme that is in force in the municipal district of each Council listed in Part 2 of Schedule 2 of the Act).
Urban zone is defined in section 64(1) of the Act to mean a zone or part of a zone under a planning scheme in force under the Planning and Environment Act 1987 of a type declared under section 64(2) of the Act. Section 64(2) allows the Governor in Council to declare (by Order published in the Government Gazette) specified types of zones under planning schemes to be urban zones for the purposes of land tax primary production exemptions in Division 2 of Part 4 of the Act.
A parcel of land is defined in section 3(1) of the Act to mean any land that is contiguous or separated only by a road, railway or other similar area across or around which movement is reasonably possible; and owned by the same person. The concept of parcel applies to section 66 but does not apply to section 65.
Section 65 operates by the force of law. This means that provided the requirements are met, the exemption applies. As part of administering an exemption under section 65, the Commissioner may request information from a taxpayer to establish whether the requirements of section 65 are met. Upon receiving such a request, the onus is on the taxpayer to provide all relevant information to assist the Commissioner in making the appropriate determination.
To claim the exemption under section 66 or 67, the owner of the land must make an application to the Commissioner and provide all the relevant information and evidentiary documents.
The purpose of this ruling is to provide the Commissioner’s interpretation of the key terms and elements relating to the primary production exemption in the context of sections 64, 65 and 66 of the Act. For guidance on the application of the primary production exemption under section 67, please refer to Revenue Ruling LTA-011. For guidance on the application of the exemption for land that is being prepared for primary production use under section 68, please refer to Revenue Ruling LTA-006.
This ruling is provided as a guide only and is not exhaustive. If your circumstances are not covered in this ruling, please consider applying for a private ruling in accordance with Revenue Ruling GEN.009v3 – General Information on Private Rulings.
Section 64(1) of the Act defines primary production as follows:
- cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or
- the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce; or
- the keeping of bees for the purpose of selling their honey; or
- commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or
- the cultivation or propagation for sale of plants seedlings mushrooms or orchids.
Types of primary production activities
(a) cultivation for the purpose of selling the produce of cultivation
Cultivation covers the whole process of production from the soil to all aspects of husbandry and it is not limited to annual crops or crops with periodical production. In some instances, land may be cultivated by breaking up the soil, by ploughing, or in other instances by activities that may or may not be associated with the breaking up of the soil. It is the land, not the soil alone, which is the subject of cultivation. The Commissioner accepts that activities such as making improvements to the water supply to plants, fertilizing, spraying plants with insecticides and fungicides, and establishing wind breaks (where these activities are performed in a context that is ancillary or incidental to cultivation) form part of cultivation of land.
The same principles apply to land used for timber production and hydroponic cropping methods. Cultivation may occur if work is carried out for the protection and improvement of the growing timber, including maintenance of firebreaks, removal of undergrowth or thinning of the trees to allow healthier growth of the remaining timber. In addition, hydroponic methods of crop production may also qualify as ‘cultivation’ where the tending of the relevant crop is conducted in accordance with the usual husbandry practices applicable to the production of crops by such means.
(b) maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce
Maintenance means keeping in existence or continuance of live animals/poultry including the provision of food, water and shelter to keep the animals/poultry alive. Such maintenance must occur on the land where the animals live for the purpose of selling the animals/poultry themselves or their natural increase or their bodily produce.
The animals/poultry must be owned and possessed by the person claiming to be the primary producer (this does not have to be the owner of the land). As nobody has possession or full ownership of wild animals in nature until they are taken, the taking of wild animals in nature (with permission or licence) does not amount to engaging in maintenance or keeping of animals.
Land located outside greater Melbourne or inside greater Melbourne but not in an urban zone that is used for agistment may qualify for a primary production exemption if the owner of the animals sells the animals, their offspring or their bodily produce. However, land used for agistment of horses kept for recreational purposes does not constitute primary production.
(c) keeping of bees for the purpose of selling their honey
The following factors may be considered in determining whether land is used primarily for keeping bees for the purpose of selling their honey:
- the number of hives kept
- quantity of honey derived from the hives that has been sold
- the length of time before and after 31 December of the year preceding the tax year during which bees are continuously maintained on the land
- the area containing buildings and equipment used in the course of maintaining the bees and producing honey, and
- the land including surrounding areas containing suitable flora and watering points from which foraging bees collect nectar and water so that the bees in the hives can make honey.
The exemption may be applicable to foraging areas in separate neighbouring lands only if there is evidence to demonstrate active cultivation and maintenance of the trees and vegetation in those areas for the bee keeping operation. Land where native trees and vegetation grow in the wild and any unused land around the hives would not be eligible for the exemption.
(d) commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear
Land used primarily for commercial fishing, including preparation for commercial fishing or the storage or preservation of fish or fishing gear may be eligible for the primary production exemption. Activities on land related to commercial fishing may include preparation or storage of nets, boats and/or other fishing equipment, preparation of bait, or storage/preservation of the fish that have been caught.
Generally, fish includes all species of vertebrate aquatic fauna (except mammals, reptiles, birds and amphibians), sharks, rays, lampreys and other cartilaginous fish, oysters and other aquatic molluscs, aquatic crustaceans and echinoderms. In determining whether a fishing/aquaculture operation falls within this primary production activity, considerable weight will be placed on whether the operation is compliant with all the relevant requirements under the Fisheries Act 1995 for such enterprises.
(e) the cultivation or propagation for sale of plants seedlings mushrooms or orchids
The activities on the land must constitute cultivation or propagation of plants, seedlings, mushrooms or orchids for sale. This includes the growing of new plants, seedlings, mushrooms or orchids and breeding as part of early cultivation of plants using propagation methods such as spores, seeds or cuttings. They may be grown in soil, in pots or in a temperature-controlled facility, and must be cultivated or propagated for the purpose of selling.
Land used for a retail nursery business to sell potted plants (i.e. where no propagation or cultivation is undertaken), including maintenance of plant stock, does not fall within this primary production activity. The same applies to stock maintenance activities of plants (for example by encouraging growth/maturation or by re-potting them).
Secondary production refers to the activity of processing or converting the primary produce into derivative items. Such activities include, for example, the processing of oranges into juice or concentrate, portioning meat into smaller pieces or processing meat into various meat products, and processing dairy products. Land used for secondary production activities, or the retail sale of products derived from secondary production is ineligible for the primary production exemption.
Where a secondary production activity occurs on the same land as the primary production activity, the primary production activity must be the primary use of the land for the exemption to apply. The exemption does not apply if the land is used primarily for secondary production activities. Please see below for guidance on the meaning of ‘primarily’.
Purpose of selling
The legislation confers an exemption only where the relevant primary production activities in section 64(1) are undertaken for the purpose of selling, or in the case of fishing, it must be commercial fishing. Therefore, a separate inquiry must be made as to the purpose of undertaking the primary production activities.
In determining whether the purpose for sale or a commercial purpose exists, all objective evidence and surrounding circumstances must be taken into account including any evidence of arrangements and transactions relevant to the use of the land. For land to be considered as used primarily for primary production, the purpose for sale or commercial purpose cannot be merely incidental to some other purpose. Further, the purpose for sale must be for produce from primary production activities on the subject land in question and not from some other land unless the land constitutes a parcel of land.
In some circumstances, the purpose of sale requirement can be satisfied if cultivated hay (or similar crops such as grains and fodder) is consumed in an activity that falls within the definition of primary production. For example, cultivated hay which was not sold but instead fed to cattle on a neighbouring land where the cattle are owned by the same primary producer and subsequently sold for their natural increase or bodily produce.
Accordingly, maintaining animals or growing crops recreationally for personal benefit (including as a form of maintenance of the land and/or weed management) or without a purpose of sale do not amount to primary production.
Timing of use
According to section 36(1) of the Act, the taxable status of land is determined as at midnight on 31 December of the preceding land tax year. This means that the eligibility of the primary production exemption turns on the requisite character of the land as at that date.
To characterise the use of the land as at 31 December, focus should be placed on activities occurring during a period not over long and not over short before and after that date. Generally, the Commissioner will consider approximately six months before and after 31 December, but it may be appropriate to consider a shorter or longer time frame in some cases.
Used primarily for primary production
To be eligible for a primary production exemption, land must be used primarily for primary production (for section 65 and 66) or solely or primarily for the business of primary production (for section 67). Please refer to LTA-011 for more details on the application of section 67.
The word ‘used’ is key to the eligibility of any of the primary production exemptions. The use refers to actual and physical use of the land including not only activity, but also inactivity deliberately adopted as a means of obtaining advantage from the land. Mere intention to use land for primary production or potential use in the future is insufficient.
Whether land is used primarily for primary production is to be determined by objectively looking at all the activities together with the surrounding circumstances of the taxpayer’s evident purpose in carrying out those activities. All the circumstances bearing on the degree, extent and intensity of the uses will be considered, and the question is one of fact and degree to be approached on a broad, common-sense basis.
If there are multiple uses on the land, it is necessary to weigh the respective uses against one another. This is an evaluative task which may be approached in a number of ways. Factors that the Commissioner may take into account include:
- the area of land over which each use extends
- the actual intensity of the primary production activities compared to the potential intensity of that use or capacity of the land
- its continuity and capabilities of the land for any other use
- the scale, extent and intensity of each use
- the extent to which land is put to uses that are unrelated
- the relative economic and financial significance of competing uses, including the amount of capital expenditure, current expenditure, revenue and profit attributed to each use
- the length of time that each use has been conducted on the land, and
- time, labour and resources spent in using the land for each purpose.
A key question of characterisation is whether the use for primary production is the predominant use of the land so as to impart to the whole of the land, the necessary character as being used primarily for primary production. Consequently, the relevant activities must have the requisite degree of substance and intensity to them and must not be minimal, slight, spasmodic or token.
If primary production is conducted across several lands, the use of each land must be separately determined. Only those lands that satisfy the criteria of the relevant primary production exemption are entitled to the exemption.
To establish that temporary inactivity on the land is part of the use for primary production, the short-term break must be demonstrated to be part of a primary production cycle. The landowner must demonstrate that the primary production activity was the primary use of the land before the break, and that the hiatus period is temporary or a typical part of the cycle of primary production. Primary production must remain as the purpose or the reason for the occurrence of the hiatus period. The hiatus can be viewed as part of the use of the land for primary production when a connection is shown to any prior or subsequent primary production activity on the land. Acceptable hiatus includes crop rotation.
The owner of land located outside greater Melbourne comprising 100 hectares allows a total of 10 cattle for 5 to 6 months of the year. The use of the land is considered minimal and does not have the requisite scale and intensity. Therefore, the land is not considered to be used primarily for primary production and is not eligible for the exemption under section 65.
Sam owns land outside greater Melbourne and uses 90% of it as a vineyard. The balance 10% of the land accommodates a small building operating as a cafe. Grapes grown in the vineyard are sold to local wineries. The café provides light meals and refreshments to tourists during the summer months. The operators of the land invest most of their time, labour and resources in the vineyard and a significant proportion of their annual revenue is derived from grape sales. Based on the above, the land is regarded as primarily used for the vineyard activities and is wholly exempt.
Partial primary production exemption
For land located outsider greater Melbourne, if only part of the land is used primarily for primary production, section 65(2) may apply to that part of the land. For that part of the land to be eligible for the exemption, it must satisfy the test of ‘used primarily for primary production’ set out above. The section 65(2) partial exemption is applied based on the eligible part of the land as a proportion of the total area.
For the purposes of sections 66, a parcel of land is to be regarded as a separate parcel of land if that part is occupied separately from or is obviously adapted to being occupied separately from other land in the parcel. Only those parcels that satisfy the criteria of the relevant primary production exemption are entitled to the exemption.
Land located outside greater Melbourne is used as a vineyard (50%) and restaurant and function centre (50%). The operators of the land invest a significant proportion of their time, labour and resources in the restaurant and function centre (which provides dining, wedding and corporate facilities). Having regard to the areas of the land used for each purpose and the time, labour and resources used for each purpose, the land is not eligible for a full exemption. However, the part of the land used for the vineyard is exempt because that part is used primarily for primary production. The land is therefore entitled to a 50% partial exemption under section 65(2).
Onus of proof
To enable the Commissioner in properly administering the relevant primary production exemption provisions, the landowner has an obligation to provide all documents and information requested. Ultimately, the onus of proving that land is eligible for the primary production exemption is on the owner of the land. If another person uses the land, the owner is responsible for obtaining and providing to the Commissioner detailed information about that person’s primary production and non-primary production (if any) activities on the land.
COMMISSIONER OF STATE REVENUE
Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN.001.