• check the zoning details on the contract;
  • if land is not zoned rural land there are additional ‘commercial’ tests to determine whether the dominant use is primary production;
  • just because the previous owner had a land tax exemption doesn’t mean you will

As a young boy, Bob always had a fascination with bees. After finishing school, he went on to study at Sydney University and obtained a degree in biological science with the aim of one day pursuing his passion and starting his own bee keeping business.

However, life’s events took him elsewhere after getting married and having kids straight out of university.

40 years later – Bob’s wife has since died and he’s recently retired from a successful career in the IT world.

Bob hears about a 10 acre property listed for a private sale, not far from where he lives. After some research and to Bob’s pleasant surprise, quite a successful bee keeping business used to be run on it. There is also a house, average, but ok as there is a long term tenant, and there are about 15 sheep keeping the grass down.

Bob goes to inspect the property and it turns out there are still some beehives on there, although very run down. He meets with the vendor Robert who said he was retiring from beekeeping and moving into the local retirement village because it’s getting too much for him and his wife had also recently died.

The two of them hit it off quickly and the next thing you know Bob agrees to purchase the property and he and Robert come to an agreement whereby Bob gets the bees back up and running and sells the honey to Robert, who would then on sell to some of his previous suppliers.

It was a win/win because it gave Bob the opportunity to finally get into bee keeping and Robert would still have something to do to keep himself busy. Robert takes Bob to his local conveyancer who had already had a contract prepared, and says the land is exempt from land tax due to the primary production use of beekeeping.

The conveyancer tells Robert that he’s done well to sell his two blocks so quickly, and Bob learns that Robert used to own another property nearby, but he had sold that a few weeks ago.

2 years on and whilst Bob has been keeping busy with his bees, and Robert making some money on the side selling his honey, Bob receives a notice of assessment from Revenue NSW for the past 2 years, for an eye watering amount.

The Sting

Section 10AA of the Land Tax Management Act 1956 exempts land from land tax that is used for the dominant purpose of primary production.

Primary production includes land whose dominant use is: e.g. the keeping of bees, for the purpose of selling their honey (s10AA (3) (d)).

“Well, that’s exactly what I’m doing” Bob thinks to himself, “and what Robert was doing before me”.

Bob checks the contract, the zoning is ‘Environmental Conservation’ which of course does not fall under the definition of ‘Rural Land’.

Where the land is not zoned ‘Rural Land’ the primary production business must satisfy additional “commercial” tests which determine whether the primary production undertaking has:

  1. Significant and substantial commercial purpose or character; and
  2. Be engaged in for the purpose of profit on a continuous or repetitive basis, whether or not a profit is actually made

Initially Bob thinks he would have a good argument on both of those points given he has a university degree and recently completed a beekeeping course, as well as making a good profit last month. He also thinks he’s nearly making as much money selling honey now than he gets from the sheep and renting the house.

Bob does some further research and comes across LT 097v3, which in particular for beekeeping, lists factors in para 46 as to determining the dominant use:

  1. number of hives kept,
  2. length of time the bees are continuously maintained on the land,
  3. the area containing buildings and equipment used,
  4. the area containing flora and watering points,
  5. availability of suitable flora from which foraging bees collect nectar and water,
  6. whether unused land surrounding the hives provides a buffer between the hives and adjacent land

Bob is pretty sure he would meet the first two factors, and possibly some of the others, however realises, given he has received an assessment from Revenue NSW that its quite subjective.

He then recalls that Robert had other property, maybe he had more of a set up there….

Author: Michaela Schmidt, Lawyer & Director