Contributed by Rajan Verma, Senior Associate and John Storey, Partner, Mills Oakley Lawyers
Under Victorian state revenue law, farm land owners are accorded certain concessions. For example, the transfer of farm land may be exempt from stamp duty under s 56 of the Duties Act 2000 (Vic) (discussed below). Moreover, an owner of farm land in Victoria may be exempted from paying land tax, provided certain requirements are satisfied.
The land tax exemptions are located in s 65, 66 and 67 of the Land Tax Act 2005 (Vic) (LTA). Each exemption has different requirements. The differences between the three sections are summarised as follows:
- Section 65: No land tax payable for land outside greater Melbourne provided the land is used primarily for primary production. Primary production activities can be operated by anyone (need not be the landowner).
- Section 66: No land tax payable for land within greater Melbourne but not in an urban zone provided the land is used primarily for primary production. Primary production activities can be operated by anyone (need not be the landowner).
- Section 67: No land tax payable for land within an urban zone within greater Melbourne provided the land is used solely or primarily for primary production. Primary production activities must be conducted by the landowner on a full-time basis. If the landowner is a company, the shareholders must be natural persons and the principal business of the company must be primary production on the land. If the landowner is a trust, the principal business of the trust must be primary production on the land. The beneficiaries must be natural persons at least one of whom (or their relative) carries on primary production on the land. If any of the beneficiaries are trusts or companies, similar rules apply with respect to those further trusts or companies.
As can be seen from the list above, qualifying for relief under s 65 or 66 is much easier than under s 67. However, with the boundaries of Melbourne expanding, many farming properties which have historically qualified for land tax relief under s 65 or 66 may now find themselves having to qualify for relief under the more onerous s 67. This is what happened in the case of EHL Burgess Properties Pty Ltd v Commr of State Revenue (VIC) 2015 ATC ¶20-516 (EHL Burgess).
Overview of EHL Burgess
The taxpayer in EHL Burgess was the owner of various contiguous properties located in Beveridge and Kalkallo in Victoria. Those properties were operated as a single farm that was running sheep. The taxpayer contended that the properties qualified for land tax relief under s 65. The Commissioner disagreed and contended that the properties were within greater Melbourne and therefore were required to comply with s 67. For reasons not explained in the case, the taxpayer would not have qualified for land tax relief under s 67.
The issue in dispute was whether the properties were located within “greater Melbourne”. The amount of land tax in dispute was about $2.1m in relation to the 2013 land tax year (yes, only one year).
Outcome of EHL Burgess
The Supreme Court of Victoria held that the properties owned by the taxpayer were not located within greater Melbourne. Accordingly, the taxpayer was eligible to claim land tax relief under s 65.
In reaching this decision, Croft J noted that the definition of “greater Melbourne” in s 64 of the LTA as it stood on 31 December 2012 (the relevant date for the 2013 land tax year) referred to various shires and cities listed in the Third Schedule to the Melbourne and Metropolitan Board of Works Act 1958 (Vic) (MMBW Act). However, when the State Government overhauled and restructured the local government system in December 1994, all shires and cities listed in the Third Schedule (with the exception of the City of Melbourne) were abolished and replaced with new Councils with new boundaries. Accordingly, the named shires and cities in the Third Schedule to the MMBW Act (with the exception of the City of Melbourne) no longer existed, with the result that the only municipality which was actually caught within the definition of “greater Melbourne” under the LTA was the City of Melbourne.
The City of Melbourne essentially includes the Melbourne CBD and a handful of surrounding suburbs, where it is very unlikely to be any primary production land.
The taxpayer’s properties were located in:
- The former Shire of Whittlesea (which was listed in the Third Schedule of the MMBW Act). Following the local government restructure, the relevant properties came to be within the Whittlesea City Council
- The Mitchell Shire Council, and
- The Hume City Council.
Since neither of the Whittlesea City Council, Mitchell Shire Council and Hume City Council were listed in the Third Schedule of the MMBW Act, the court concluded that those properties were not within “greater Melbourne” and therefore could qualify for land tax relief under s 65 of the LTA.
Implications of the case
The legislative error identified in EHL Burgess was rectified from 18 June 2014 when a new definition of “greater Melbourne” was introduced into the LTA. Accordingly this case will not affect land owners moving forward.
However, for taxpayers who owned farm land prior to 18 June 2014, the implications of the decision in EHL Burgess could be very favourable. Specifically, those taxpayers could be entitled to claim land tax relief under s 65 for the 2014 and prior years and therefore obtain refunds for land tax previously paid.
As the City of Melbourne essentially includes the Melbourne CBD and a handful of surrounding suburbs, one would expect every piece of farm land to be outside of the City of Melbourne and therefore potentially able to benefit from the outcome of this case.
Moreover, the stamp duty exemption under s 56 of the Duties Act 2000 (Vic) for transfers of farm land to relatives could also be available, since that exemption is only available to farm land which is covered by s 65, 66 or 67 of the LTA. Accordingly, taxpayers who transferred farm land in 2014 or prior years but did not qualify for the exemption under s 56 should revisit their transaction in light of the decision in EHL Burgess.
Any amendment of prior year land tax or stamp duty assessments is likely to be limited to five years, being the Commissioner’s administrative reassessment period.
Commissioner’s response to EHL Burgess
The authors understand that the Commissioner has appealed the decision in EHL Burgess. It will be interesting to see how the appeal is resolved in the courts, and what further action (if any) the Commissioner or the government may take if such appeal is unsuccessful. One possibility is that there may be a legislative response, such as retrospectively amending the law to correct the error in the definition of greater Melbourne for years prior to 18 June 2014.
With respect, the authors submit that this could be a good opportunity to reconsider the application of this land tax exemption in a more holistic manner.
As a matter of policy, it is difficult to understand why the location of property should affect the availability of land tax relief which is genuinely being farmed. As currently drafted, the land tax law provides that a property on one side of a line can qualify more readily for relief than a property being used in an identical manner on the other side of that same line. This does not seem like good policy.
Despite the current uncertainty around the outcome of the Commissioner’s appeal, the authors strongly recommend that taxpayers who own farming land in what they may have thought was “greater Melbourne” review their circumstances and if necessary obtain professional advice on the prospects of obtaining a refund of any prior year land tax or stamp duty assessed on their property.