Key points

• This case represents a significant victory for taxpayers as it has broadened the availability of the primary production land tax exemption.
• Notwithstanding that the relevant land had been committed to future property development and that there was a partnership agreement relating to the use of the Land, the exemption was available.
• A primary production business can be undertaken by way of lease of land for primary production purposes if the lessor is one of the parties involved in the primary production activity being undertaken.
• The approach by the Court could apply across all jurisdictions for land tax and impact other taxes including the application of the non-commercial loss rules.
• Businesses need to keep detailed evidence of their activities so that their positions can be substantiated.

Premier Bay Pty Ltd v Commissioner of State Revenue [2024] VSC 447

Dentons’ Tax team successfully represented its client Premier Bay Pty Ltd (‘Premier Bay’) in both the Victorian Civil and Administrative Tribunal (‘VCAT’) at first instance, and the Victorian Supreme Court (‘Court’) on appeal in a contentious land tax matter.

Background

Premier Bay was the trustee of a trust that owned a property in Donnybrook (‘the Land’). Between 2017 and 2019 the Land was leased to a partnership between the beneficiary of the trust and the estate of his deceased wife (‘Partnership’) to be used for the business of breeding cattle for sale.

Premier Bay also owned other properties that were leased to third parties and had entered into a development agreement in relation to the Land. It also carried on primary production activities on another property.

Premier Bay would have been eligible for the primary production land tax exemption under section 67 of the Land Tax Act 2005 (Vic), if:

(a) the land was used solely or primarily for primary production; and

(b) the trust beneficiary was substantially engaged full-time in the business of primary production; and

(c) the primary production business was the primary business of the taxpayer.

The Commissioner denied the exemption and assessed the Land to land tax.

VCAT decision

At first instance, VCAT ruled that Premier Bay was ineligible for the primary production exemption.

VCAT accepted that the Land was primarily used for primary production and that a trust beneficiary was substantially engaged full-time in the primary production business. 

However, it concluded that primary production was not Premier Bay's principal business. Rather, that Premier Bay was operating two equally significant businesses: primary production (on the other property) and property leasing (of the Land to the partnership and the other properties to third parties). In reaching this conclusion the activities on the Land were characterised as leasing activities rather than primary production activities.

Victorian Supreme Court decision

The sole issue before Croft J was whether Premier Bay’s primary business was primary production.

Croft J overturned VCAT’s approach regarding the characterisation of Premier Bay’s business.  He held that the lease to the partnership was a function of Premier Bay’s primary production business given the synergy between the primary production activities and the lease to the partnership.

Accordingly, it was held that from mid-2017 to mid-2019, the Land was exempt from land tax as the primary business of Premier Bay was primary production.

The Court’s decision can be accessed here.

Key Takeaways

• The nature and extent of each of a taxpayer’s businesses must be considered before it can be determined which of those businesses is their primary business.
• Businesses should consider the level of integration of their operations, as this may be relevant in a number of tax contexts including land tax and the application of the non-commercial loss rules.
• Businesses that operate primary production businesses should keep detailed evidence of their activities so that their positions can be substantiated.