Vic Land Tax exemption for leasing land in primary production business

The Victorian Supreme Court has allowed a taxpayer’s successful appeal from a decision of the VCAT and found that it was entitled to an exemption from land tax under section 67 of the Land Tax Act 2005 (Vic) on the basis that the land was used by the taxpayer primarily production land.

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 held by the trustee of a discretionary trust is used solely or primarily for a business of primary production.

The taxpayer, the corporate trustee of a discretionary family trust, was assessed in the 2018 and 2019 land tax years for land tax on the land, which it leased to a Partnership made up of some of the family members.

In determining the principal business of the taxpayer, at the Tribunal level (leading to the Supreme Court decision) there was a comparison of the gross income, labour employed, and capital employed in each respective business.

The Tribunal found that Mr. M (the key individual involved in the activities on the land, a director of the corporate trustee and one of the partners in the Partnership) undertook the majority of the taxpayer’s cattle farming activity himself and was ordinarily engaged in the business of breeding cattle for sale in a substantially full-time capacity.

The Supreme Court considered that the rental payments made to the taxpayer were simply the mechanism for allocating revenue from the sale of cattle to the taxpayer (including that the taxpayer was also engaged in the relevant activities).

As such, this resulted in the Supreme Court finding that the taxpayer was “carrying on one integrated primary production business” and the rent received by the taxpayer from the Partnership arose from the taxpayer’s primary production business.  The fact that the taxpayer and the Partnership held separate identities did not take away from this conclusion.

The Supreme Court also noted that the lease arrangement “was merely instrument designed to allocate revenue from primary production cattle business on land to the taxpayer”.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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