Importance of Being Earnest About Land Tax

30th March 2021
Category Property Development

There is a rapidly expanding number of people taking up small rural land holdings or “hobby farms”. As RMB Lawyers Partner and rural property expert HUW EDWARDS explains, it pays to be aware of potential tax implications:

Though it was the title to one of Oscar Wilde’s plays, The Importance of Being Earnest best describes the approach to record-keeping that people who buy small rural landholdings should follow if they want to prevent unwanted tax consequences flowing from their weekend pursuits.

Section 10AA of the Land Tax Management Act exempts “land that is rural land from taxation if it is land used for primary production”. The two-limbed test mandates that not only is the small landholding zoned rural, rural residential, non-urban or large lot residential but that its dominant use is for:

  1. cultivation, for the purpose of selling the produce of the cultivation, or
  2. the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or
  3. commercial fishing or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or
  4. the keeping of bees, for the purpose of selling their honey, or
  5. a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or
  6. the propagation for sale of mushrooms, orchids or flowers.

Revenue NSW will require documentary evidence that one or more of the above activities is being undertaken in the form of:

  1. national vendor declarations recording the movement of stock onto and off the land;
  2. annual land and stock returns submitted to Local Land Services confirming the use of the land for primary production purposes;
  3. agistment or lease agreements confirming third parties’ rights to depasture animals on the land; or
  4. registration details for any beekeeper maintaining hives on the land.

Without such evidence of the use of the land, your weekend dream may lead to an unwanted land tax bill.

It therefore makes very good sense to have a clear idea of how you intend to use your land before you purchase it, and to keep accurate records to verify the uses that your land is put to after purchase.

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