In 1535 Henry the 8th introduced the anti-tax avoidance legislation known as the Statute of Uses, which related to financial responsibilities - or, land tax - resulting from the ownership and use of land. So began the practise of land owners engaging lawyers to look for ways in which to avoid their land tax obligations - and five hundred years later, this practise really hasn’t changed considerably.
The Office of State Revenue (OSR) has, in recent years, cracked down on property developers looking to claim tax exemption by asserting land is being used for primary production. A recent court decision, however, has put the OSR in its place and set a precedent which will be of interest to developers.
In the case of Chief Commissioner of State Revenue v Metricon QLD Pty Ltd, the court concluded that Metricon’s use of land for cattle grazing was the ‘dominant purpose’ of the land and therefore not subject to land tax - since primary production is tax exempt. This decision was made despite steps taken by Metricon to prepare the land for development.
Metricon - a property developer and building company - had been ‘land banking’ land around Terranora, in north-eastern NSW, since 2008. Over the years, Metricon had paid consultancy fees and taken other actions that were consistent with getting the land ready for development, however, in the meantime the company was using the land for cattle grazing.
The Chief Commissioner argued that Metricon’s holding of the land meant that the ‘dominant purpose’ of the land was property development, not primary production - and claimed that land tax should therefore apply. However, the Court concluded that ‘use’ should be defined as the physical deployment of an asset (ie land) for the purpose of obtaining a present benefit or advantage from it, and is not to be determined by reference to plans for future use, or to the identity of the person/company using the land. On this basis, the land was being used for primary production and was not liable to land tax.
This is an important decision for property developers who may be considering how to use land prior to development or sale. With the large amount of development currently being undertaken in Port Macquarie and surrounds, developers may wish to consult us regarding the most tax effective use of their land - just as property owners have been doing since 1535.
For more information in relation to this matter, please contact Hadyn Oriti, Partner, on (02) 6583 0449.