Land tax is one of those state-based taxes that often goes unnoticed, unlike income tax or GST, yet it significantly affects property owners once certain thresholds are reached. This tax applies when the unimproved value of land surpasses a specified amount, which varies between states. Typically, principal places of residence are exempt, while investment properties, commercial holdings, and certain rural plots can be subject to tax.
For individuals and small businesses, it’s essential to stay informed about land tax, as available exemptions can lead to either a manageable annual fee or an unexpected financial burden. A recent case in New South Wales (the Zonadi case) has brought attention to when land utilized for cultivation qualifies for the primary production exemption. This information is especially relevant for farmers, winemakers, and those with mixed-use rural properties.
The Basics of Land Tax
Land tax is levied in every state and territory except the Northern Territory. Key features include:
- Assessment date: Typically set at midnight on 31 December of the previous year (for example, the 2026 assessment is based on ownership and use as of 31 December 2025).
- Thresholds: These differ across jurisdictions; for instance, in 2025, the NSW threshold is $1,075,000, while in Victoria, it is $300,000.
- Exemptions: These include principal places of residence, primary production land, land owned by charitable organisations, and certain concessional categories.
- Rates: The system is progressive, meaning higher landholdings incur higher rates.
Unlike council rates that support local services, land tax serves as a revenue mechanism for states. It must be paid annually and is calculated based on the total taxable value of landholdings.
Primary Production Exemption
Most states exempt land utilized for primary production from land tax, as the underlying policy is to relieve farmers from tax burdens when using their land to produce food, fibre, or similar goods. However, the specifics of what constitutes primary production can differ.
Qualifying uses typically include:
- Cultivation (growing crops or engaging in horticulture)
- Maintaining livestock (grazing, dairy farming, poultry, etc.)
- Commercial fishing and aquaculture
- Beekeeping
While this may seem straightforward, the complication lies in the purpose and manner of land usage.
Lessons from the Zonadi Case
The Zonadi case centred on an 11-hectare vineyard located in the Hunter Valley, which was used for:
- 4.2 hectares of vines for wine grape production
- A cellar door and wine storage area
- A residence and tourist accommodation
- Additional trees, paddocks, and access routes
Over five disputed land tax years, the taxpayer sold some grapes directly but primarily used the majority of the crop to produce wine off-site, which was then sold through the cellar door. Income was generated from grape sales, wine sales, and tourist accommodation.
The NSW Tribunal was tasked with determining whether the primary use of the land was cultivation aimed at selling the cultivated produce (as mandated by section 10AA of the NSW Land Tax Management Act).
The result was unfavourable for the taxpayer. The Tribunal concluded:
- Growing grapes is indeed a type of cultivation that qualifies as primary production.
- However, cultivation for wine production does not qualify since the exemption only applies if the produce is sold in its natural state. Wine is considered a processed product, not a direct product of cultivation.
- Despite some grapes being sold directly, the majority of the income was derived from wine sales.
- Thus, the dominant use of the land was cultivation for wine production, which is not exempt.
As a result, the exemption was denied, resulting in a land tax bill for the taxpayer.
Why This Matters
This case offers a cautionary tale for small businesses, particularly those that combine farming with value-added operations like processing or tourism. The distinction between primary and secondary production can determine eligibility for land tax exemptions.
If the majority of income derives from a cellar door, accommodation, or product manufacturing, the exemption might be jeopardised, even if cultivation is occurring on the land.
Different Rules in Victoria
Victoria adopts a broader perspective. It defines primary production to encompass cultivation aimed at selling produce in its natural, processed, or converted state. Therefore, grapes sold for wine production would still fall under the primary production categorization.
The only additional requirement is the “use test,” which depends on location:
- Outside Greater Melbourne: Land must be used primarily for primary production.
- Within urban areas: Land must be used solely or primarily for primary production businesses.
If Zonadi had been situated in Victoria, the outcome may have been notably different, likely resulting in exemption from this requirement.
State-Based Comparisons
Here’s a summary of how land tax regulations vary among states regarding cultivation and primary production:
| State | Primary Production Definition | Key Use Test | Treatment of Processed Produce |
|---|---|---|---|
| NSW | Cultivation intended for selling produce in its natural state | Dominant use must be cultivation for natural produce sales | Wine made from grapes is not exempt |
| VIC | Cultivation for selling produce in a natural, processed or converted state | Primarily or solely depending on location | Wine, dried fruit, etc., remain exempt |
| QLD | Broad definition, including cultivation and livestock maintenance | Must be used exclusively or primarily for primary production | Processed products accepted |
| SA | Similar to NSW; emphasis on dominant use | Based on actual and predominant use | Narrower interpretation, similar risks to NSW |
| WA | Exemption applies to land used for primary production (cultivation, grazing, etc.) | The owner must be actively conducting a primary production business | Generally broader than NSW |
| TAS | Land used for primary production is exempt if actively utilized | Based on use as of 1 July | Broad coverage |
| ACT | Land tax applies only to residential properties | Primary production is generally not relevant | N/A |
Tips and Strategies for Individuals and Small Businesses
- Understand the dominant use test
In NSW and SA, revenue authorities consider all land uses. If income from tourist accommodation or value-added services dominates, the exemption may be denied. - Document use and income streams
Keep thorough records detailing the proportion of land used for cultivation, time and labour invested, and income distribution among activities. This documentation can be crucial if disputes arise. - Consider state differences
If you own land across multiple states, be mindful of the varying laws and regulations. Victoria and Queensland are generally more lenient in acknowledging processed or converted products as primary production. - Review structures
Utilising trusts or companies can alter liability, but exemptions are based on use rather than ownership structure. Ensure your entity is eligible. - Timing matters
Use is assessed based on a specific date (e.g., 31 December in NSW). Authorities may review use around that date, so it is essential to document any seasonal activities effectively. - Be wary of mixed uses
Integrating a farm with accommodation or hospitality services might shift the balance. A growth in non-farming income could lead to increased land tax liabilities.
Conclusion
Land tax in Australia is a complex and fragmented system. For individuals and small businesses, especially those in agriculture and agribusiness, understanding the rules regarding primary production exemption is vital. The Zonadi case highlights the thin line between cultivation for sale in its natural state and cultivation that supports a processing operation.
The major lessons are:
- In NSW and SA, exercise caution if a significant portion of your income arises from processed products such as wine, cheese, or tourism.
- In Victoria and Queensland, rules are more forgiving, accepting processed or converted products.
- It is essential to document your land use, income, and labour to defend against any challenges.
For small landholders, obtaining a clear understanding of their land’s actual use and income sources can prevent costly disputes. If in doubt, seek advice early on, as once a land tax assessment is issued, the responsibility to prove eligibility for exemption falls on the taxpayer.
