At first thought, 'land banking' and primary production exemption from land tax would appear to be mutually exclusive. A landowner's intention when land banking is to profit from future sale of its land, which is significantly different to the intention of a landowner that uses its land for primary production.
However, two recent cases decided by the Courts of Appeal of Victoria and New South Wales respectively confirm that it is possible for a landowner to land bank, whilst also claiming a primary production exemption from land tax.
In CDPV Pty Ltd & Ors v Commissioner of State Revenue1 (CDPV), the landowner had sold its Victorian land to a property developer under a terms contract, which was on foot during the assessment period in question. The landowner claimed a primary production exemption on the basis of an oral crop share farming agreement, pursuant to which a sharefarmer cultivated the land during the relevant period.
The Victorian Court of Appeal was required to consider whether the landowner's land was used primarily for cultivation for the purpose of selling the produce of cultivation during the relevant period.2 If it was, then the land would be exempt from land tax.3
It was not disputed that the land was used primarily for cultivation during the relevant period.4 The issue to be determined was the 'purpose' of the cultivation. The landowner argued that 'purpose' must be determined on an objective basis by reference to what was actually done on the land, rather than the subjective intentions or motivations of those responsible for the cultivation.5
The Court held that both the activities conducted on the land and the purpose of the person using the land are relevant in determining the purpose of the primary production activity being carried out on the land.6 In other words, the intention of the landowner is not fully determinative where its land is being used by another person.7 Given that the landowner had sold its land to a property developer, it is reasonable to assume that its intention was to profit from the sale of the land. However, the activities and intention of the sharefarmer in this case were decisive.8
Ultimately, the Court rejected the landowner's appeal due to a lack of evidence about the alleged oral share farming agreement.9 The Court found that cultivation on the relevant land was not for the purpose of selling the produce of cultivation, but rather to control the spread of weeds.10 Whilst the outcome of the case was not favourable to the landowner, it is clear that land banking and primary production are not mutually exclusive in Victoria.11
In Chief Commissioner of State Revenue v Metricon Qld Pty Ltd12(Metricon), the landowner had acquired multiple parcels of land in New South Wales with an intention to develop them into residential lots. The landowner took active steps towards development, such as retaining planners and consultants, lodging an application for a proposed plan of subdivision in relation to part of its land and applying for a construction certificate for a temporary sales office.
During the period in question, the relevant land was used for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce.13 Unlike in CDPV, the 'purpose' of the activity conducted on the land was not in dispute. Rather, the 'dominant use' of the land was disputed, as the Chief Commissioner claimed that it was land banking or development based on the steps taken by the landowner as noted above.14
The New South Wales Court of Appeal held that the steps taken by the landowner to develop its land did not amount to 'use' of the land, as there was no deployment of the land in pursuit of a purpose of obtaining a present benefit and advantage from it. The actual benefit and advantage were projected or anticipated only.15 The Court acknowledged that the landowner had spent substantial amounts of time and money, but considered this to be preparatory in nature to its intended use of the land for development.16
Despite the land most likely being part of the trading stock of the landowner (as it is in the business of property development), the Court did not consider that relevant to the 'use' of the land during the period in question.17
There will be a change in use of the land when some 'physical activity' causes the land to be deployed in pursuit of obtaining a present benefit and advantage from it, such as substantial earthworks.18 Hence, any analysis must focus on the physical activity conducted on the land, as opposed to the landowner's intention at any given time.
Despite the differences in land tax legislation between Victoria and New South Wales, CDPV and Metricon confirm that it is possible for a landowner to land bank, whilst remaining eligible for a primary production exemption from land tax.
In summary, CDPV confirms that the 'purpose' of the activity conducted on the relevant land is to be assessed by reference to the activity itself as well as the subjective intention of the person undertaking the activity. Metricon confirms that the 'use' of the land is to be assessed by reference to the physical activity undertaken on the land, and not the intention of the landowner. An intention to land bank is not necessarily mutually exclusive with the 'purpose' and 'use' of land for primary production.
Specific tax advice should be sought by any landowner seeking to rely on a primary production exemption, as the evidentiary requirements can be complex and failure to satisfy the requirements may be very costly.
1  VSCA 89.
2 Ibid at .
3 Under section 66 of the Land Tax Act 2005 (Vic).
4 VSCA 89 at .
5 Ibid at .
6 Ibid at .
7 Note that this is for the purposes of section 66 of the Land Tax Act 2005 (Vic), which deals with land in greater Melbourne but not in an urban zone. It would also apply to the exemption under section 65 of the Act, which deals with land outside greater Melbourne. It would not apply to section 67 of the Act, which deals with land in an urban zone in greater Melbourne (as that exemption has strict requirements about the owner of the land).
8  VSCA 89 at .
9 Ibid at .
10 Ibid at .
11 Refer to note 7 above.
12  NSWCA 11.
13 Ibid at .
14 Ibid at .
15 Ibid at .
16 Ibid at .
17 Ibid, footnote 26, at .
18 Ibid at -.