In a win for the property industry, the OSR’s restrictive approach on the availability of the primary production land tax exemption has been called into line. In Metricon Qld Pty Limited v Chief Commissioner of State Revenue (No. 2) the Supreme Court upheld a property developer’s claim that its land bank was exempt from the tax.
The availability of the primary production land tax exemption has been eroded over time as the Office of State Revenue (OSR) and the courts effectively shifted the test for claiming land tax exemptions from one of ‘dominant use’ to ‘intended economic return’
On 1 July 2015, Revenue Ruling No. LT 097 was issued which reiterated the stance that economic and financial significance of competing uses were to be taken into account in determining ‘dominant use’.
In Metricon a property developer held land at Terranora in the Tweed Valley and had sought various approvals for the urban development of the land. No actual construction or earthworks had occurred. The land was being used by professional cattle producers under an agistment agreement.
The Court found that the holding of the land by the developer as part of its stock-in trade was not a ‘use of land’. While it was found that the land was ‘used’ for commercial land development this was not sufficient to displace primary production as the dominant use. Merely engaging consultants to prepare reports for the purposes of obtaining approvals (without physical use of the land) did not jeopardise the availability of the primary production land tax exemption.
The Property Council has long advocated for a ruling to be issued which sets clear and fair parameters for when the primary production land tax exemption applies.
The trigger for removal of the exemption should be the discontinuance of primary production activities and commencement of substantial development works – recognising the difference between major earth or civil works and preparatory works such as construction of an access road or survey work.
It is encouraging to see the Metricon case supports this approach.
[Written and published by Property Council of Australia]