For many rural landowners, leasing out a cottage or running a side business is a smart way to boost income. But recent rulings, such as Wylarah Pastoral Co v NSW Revenue [2024] NSWCAT, show that mixed-use land can have far-reaching consequences, specifically with respect to Land Tax. However, mixed-use land can also impact Capital Gains Tax (CGT), stamp duty, and succession planning.
Land Tax: The Starting Point
Under NSW law, land used for primary production may qualify for a land tax exemption under s. 10AA of the Land Tax Management Act 1956 (NSW). However, if part of the property is leased for residential or commercial purposes, that exemption can be lost. In the case of Wylarah the landowner sought to challenge the Chief Commissioner of State Revenue on the basis that the dominant use of the land was farming cattle, and a rental property was a secondary business only. The Wylarah case confirmed that rental income can tip the balance against primary production being the “dominant” purpose by virtue of the income it generates, rather than the percentage or area basis of the land the second business uses.
Capital Gains Tax (CGT)
When selling or transferring rural property, CGT can apply. While farming businesses may access concessions such as the small business CGT concessions mixed use complicates eligibility. If a portion of the land is used for non-farming purposes, the gain may need to be apportioned, or access to concessions such as main resident exemptions may be impacted.
Stamp Duty
Succession planning often involves transferring land to family members. NSW and VIC offer stamp duty concessions for farming property transfers within families, but these rely on the land being used primarily for primary production. Mixed-use arrangements can jeopardize eligibility and trigger full stamp duty on the transfer.
What Should Landowners Do?
- Keep detailed records: Demonstrate that farming is the dominant use, and ensure when leasing out the property the lease or licence is documented, and the ‘permitted use’ properly explains the activities on the property.
- Seek advice before diversifying, from an accountant, financial planner, and lawyer (where applicable).
About the Author
Winona Page is a senior associate solicitor at Commins Hendriks, who has recently relocated to the Riverina. Winona will be frequenting the Coolamon office and would be happy to provide tailored advice regarding your superannuation and estate plan.
Please contact Commins Hendriks to make an appointment for advice specific to your situation.
The advice provided above is general in nature and is not formal legal advice.