Most Victorian farmers who are using Victorian land solely or primarily for primary production purposes are aware of the primary production land tax exemptions under section 65, 66 or 67 (Primary Production Land Exemptions) of the Land Tax Act 2005 (the Act).

In addition, there is a further land tax exemption available under section 68 of the Act where preparatory activities are undertaken on lands that are subsequently used for primary production (Preparatory Exemption).

How does land qualify for the Preparatory Exemption?

Under the Act, the Preparatory Exemption applies to:

• land being prepared for use primarily for primary production; and

• where the Victorian Commissioner of State Revenue (Commissioner) is satisfied that the land will qualify for the Primary Production Land Exemption within 12 months of preparatory work commencing.

If the period of preparation exceeds 12 months, the Commissioner, pursuant to section 68(2) of the Act, can consider a taxpayer’s request to extend the exemption period.

If this discretion is not exercised in the taxpayer’s favour, land tax is assessed on the farm land.

The application of the Preparatory Exemption contained under section 68 of the Act was considered in the recent VCAT decision Portbury Development Co Pty Ltd as trustee for Portbury Family Trust v Commissioner of State Revenue (Review and Regulation) [2020] VCAT 631 (Portbury).

Facts in Portbury

In Portbury, the taxpayer (the trustee of the Portbury Family Trust) used three adjacent parcels of land for grazing of cattle and sale of hay until February 2014. The taxpayer argued that, although the land was not subsequently used for primary production during the 2015 and 2016 land tax years, the land still qualified for a Preparatory Exemption from land tax under section 68 of the Act.

Ultimately, in this matter the Tribunal agreed with the Commissioner’s view that the Preparatory Exemption did not apply and upheld the 2015 and 2016 land tax assessments.

• The Tribunal was not satisfied that any work of a preparatory nature was undertaken with the requisite intensity to satisfy section 68(1)(a) of the Act.

• This conclusion was largely drawn from assessing the evidence on hand provided by both parties (including aerial imagery of the land at different points in time).

• From the evidence provided, it was objectively assessed by the Tribunal that works were instead undertaken which appeared to be consistent with conducting remedial and rehabilitative works on the properties which would improve and ready the properties for sale.

• The Tribunal, stepping into the Commissioner’s shoes, also declined to exercise the Commissioner’s discretion under section 68(2) to extend the period to which the Preparatory Exemption could apply from 12 months to 24 months as there was no evidence to substantiate it was unreasonable for the preparatory works to be completed in 12 months.  

Notable observations and takeaways for Victorian primary producers

From the Tribunal’s decision, notable observations and takeaways for taxpayers seeking the Preparatory Exemption include:

• The burden of proof, to satisfy the Preparatory Exemption, or any discretionary extension periods, lies with the taxpayer.

• The importance of taxpayer’s providing sufficient evidence to back their claims.

• Remedial and rehabilitative works will not necessarily satisfy the Preparatory Exemption requirements.

• The fact that it is subsequently known that the primary production exemption was not subsequently obtained is not fatal to the application of the Preparatory Exemption. Whilst subsequent events are not entirely irrelevant, it should only be considered to the extent that the Commissioner is only required to be satisfied at a specific time, namely 31 December of the year preceding the relevant land tax year, that the relevant land would subsequently qualify for one of the primary production land exemptions.

• The Commissioner’s discretion under section 68(2) of the Act to extend the Preparatory Exemption, from a period of 12 months to 24 months, is intended to deal with situations where it is unreasonable to expect the preparatory work to be completed in 12 months.

If you require advice on land tax, please contact:

Denise Tan
Senior Associate
T +61 3 9611 0160 | M +61 438 714 965
E dtan@sladen.com.au

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801   
E  pbroderick@sladen.com.au   

Laura Spencer
Senior Associate
T +61 3 9611 0110
E lspencer@sladen.com.au

Lucy Liang
Graduate Lawyer
E lliang@sladen.com.au