News & Insights

If you own farmland in Victoria and have yet to start the farming process, you need to turn your attention to a recent land tax update out of the State Revenue Office (SRO). On 16 October 2024, the SRO published Revenue Ruling, LTA-006v2 (Updated Ruling) updating Revenue Ruling LTA-006 in relation to their position on the preparatory primary production exemption contained in section 68 of the Land Tax Act 2005 (Vic) (Act).

Put simply, the Updated Ruling states the SRO now takes the view that further requirements will need to be established for the land owner to be granted the preparatory primary production exemption. Whether you’ve purchased land for a winery, cattle farm, or orchard – what was once a relatively simple process, is now more complicated.

Our Victorian state tax expert, Thomas Abraham, discusses why clients should seek legal advice when addressing the expanded requirements in the Updated Ruling.

What is the preparatory primary production land tax exemption

The preparatory primary production land tax exemption in section 68 of the Act provides land tax relief where land has yet to satisfy the more onerous requirements for the respective primary production land tax exemptions contained in sections 65, 66 and 67 of the Act.

The preparatory primary production exemption provides landowners with land tax relief where the land is in the process of being set up and prepared for primary production to be undertaken on the land.

If eligible, the preparatory land tax exemption will apply for one year, with the Commissioner having the discretion to extend the exemption for a further year (i.e. second year).

Key updates in Revenue Ruling LTA-006v2

1. Preparatory works must be linked to particularised elements of primary production

The Updated Ruling now expressly states that a general intention to use the land for primary production is insufficient. Instead, it must be proven that the preparatory works undertaken are linked to one of the five elements of the definition of primary production contained in section 64(1).

This follows the Victorian Supreme Court’s decision in Mintfield Pty Ltd v Commissioner of State Revenue [2023] VSC 317, where the preparatory exemption was found not to apply due to, among other reasons, the nature of the primary production activities (ie crop cultivation) differing from those which the preparatory works were directed (ie cattle farming). If land owners claim for the purposes of the preparatory exemption that they are going to use the land for cattle farming for example, the land must then be used for cattle farming. The category of primary production to take place on the land cannot change in order for the preparatory exemption to apply.

2. Section 68 will be considered together with the relevant primary production exemption provisions

The Updated Ruling states that even if a conclusion could be reached that land was being prepared for use primarily for primary production, evidence will be required to support a further conclusion that the land would become exempt under the relevant primary production land tax exemptions.

While this “requirement” does not appear to be contained in section 68 of the Act, the Updated Ruling suggests (see Example 2) that where land is located in greater Melbourne, due to the landowner being engaged in other significant business (ie other than primary production), even though preparatory works are undertaken, it would appear that the land will not be exempt under section 67.  A state tax law expert can be of assistance in gathering evidence and helping navigate the nuance of exemption requirements.

3. Preparatory activities must be physically conducted on the land

The Updated Ruling now clearly sets out that for the exemption to apply, it must be shown that physical preparatory activities are conducted on the land, with mere intention alone being insufficient.

Further, the Updated Ruling states that preparation of legal formalities (eg. Signing of agreements) will not satisfy the requirements of the preparatory land tax exemption.

4. Evidentiary requirements for extension of time

While the previous ruling briefly states that the Commissioner has discretion under section 68(2) of the Act to extend the period under section 68(1) by 12 months, the Updated Ruling now sets out what the Commissioner will require in relation to the extension request. The requirements include (but is not limited to) the below.

• Details and evidence of the preparatory activities that had occurred on the land in the previous 12 months and an explanation of how they correlate or contribute to the specified type of primary production (under section 64(1)) for which land will ultimately be used.
• Details and evidence of the additional preparatory activities that need to occur in order to facilitate the specified type of primary production (under section 64(1)) for which the land will ultimately be used.
• Details of why these additional preparatory activities could not be completed in the previous 12 months.
• Photographic evidence of the condition/state of the land before the commencement of the preparatory activities (that can be identified as linked to the land at the relevant time).
• Photographic evidence of the condition/state of the land at the conclusion of the 12-month period from which preparatory activities commenced (that can be identified as linked to the land at the relevant time).
• Details of any period of non-activity or activities unrelated to the specified type of primary production.
• Details of events that were outside the landowner’s control (if any) during previous 12-month period and how they prevented the completion of the preparatory activities.
• Any other information/evidence the Commissioner considers relevant.

Contact our taxation team for further advice

There’s a great deal of background knowledge required to navigate the Updated Ruling. Macpherson Kelley’s tax team is here to help you understand how the land tax laws apply and provide you with valued advice before it is too little too late. Contact us today to discuss how we can assist you in managing your land tax obligations effectively.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.