This is the third part of our series on land tax exemptions. You can access the previous articles on moving home and building a home by clicking on the relevant topic. In this article, we will explore how the primary production land and rooming house exemptions work.
This series is a response to the increasing burden of land tax on property owners and investors. Land Tax collected by the State Revenue Office increased from $525 million in 2000/01 to $5,372 million in 2022/23 – and is likely higher again this year.
It is important, when buying property to consider the land tax and other tax implications of your property purchase. It is worth spending some time speaking to your accountant and lawyer to make sure you get the structure right. I have spoken to a couple of clients recently who were going to purchase their principal place of residence in a structure. When I pointed out that this would have land tax implications as well as likely result in the loss of the capital gains tax exemption they reconsidered their plans. In both cases, I think the client got more value from their purchase contract review than the $165 they paid! To book your purchase contract review click here.
In the next article in this series we will look at when the principal place of residence exemption applies to an adjacent title. At a later date we will also look at vacant residential land tax and holiday homes….
Primary Production Land
First up I want to explore two real life case studies in the context of the primary production exemption from land tax. What I want to emphasize is not so much the detail of ease case – but rather how some awareness might have saved each client tens of thousands of dollars in land tax.
The Horse Farm
The first client owned 20 acres of land on which the client had built a home and used the balance of the property for horses and a horse arena. The client had previously claimed that the balance of the property was used for business purposes as there was some income from agisting horses and possibly for the use of the horse arena.
The client then started to receive increasing land tax assessments and sought advice.
The main house was exempt – as a principal place of residence. However, the balance of the property was assessed for land tax.
The obvious exemption to apply for was the primary production exemption. However, in simple terms and to the extent relevant here, that was limited to maintaining animals for the purpose of selling them or their natural increase or bodily production. That doesn’t seem to include horses maintained for riding….
However, the question is, whether with a little preparation, the land could be reconfigured so that some was maintained to sell some hay, breed horses and otherwise qualify for the land tax exemption? The difference would come to tens of thousands of dollars per year.
The Nature Reserve
Another client maintained a similar size property. There was a holiday house on the property and some land had been dedicated to environmental uses and some was used to rear livestock.
The difficulty was that the client had already been in discussion with the State Revenue Office before they sought advice. We might have been able to satisfy the primary production exemption but the client had already advised the SRO that the dam on the property was an environmental reserve.
If we had been able to recategorize the dam as being available for the livestock in some way the majority of the land could have been argued to be primary production land and hence the exemption may have been available….
Rooming Houses
The land on which a rooming house is built can be exempt from land tax. I am aware of some clients who own larger suburban properties that have converted their property from rental properties to rooming houses as otherwise the land tax would have made retaining the property uneconomic.
However, the concession may be less generous than it first appears. There are a number of criteria that need to be satisfied:
- The rooming house must be registered;
- It must be primarily (80%+) for long term (3 months +) low cost accommodation by people with low incomes; and
- The maximum tariff is defined by reference to the weekly age pension rate.
You can access the SRO’s checklist in detail here.
If you are planning on claiming the exemption it is important to make sure that you are aware of the conditions and that you can satisfy them on an ongoing basis.
Concluding Thoughts
I regularly make the point to clients that the State Revenue Office is in the business of collecting revenue and not handing out exemptions. They are good at collecting revenue and the laws are regularly updated to assist them. Exemptions will only be provided if you satisfy all the relevant criteria.
For property owners and investors a little knowledge can go a long way. Making sure that your acreage and / or rooming house is set up the right way may enable to you obtain land tax exemptions worth tens of thousands of dollars per annum.
If you require assistance in relation to land tax or just want to understand your latest land tax assessment please book a session with me – this can be done in a matter of seconds at a fixed fee of $275 (inc GST) by clicking here.
Lewis O’Brien
Your Preferred Property Lawyer