Can Diversification Cause Your Land to Lose its Primary Production Status?

By February 26, 2019Uncategorized

For some time we have all been told businesses, including primary producers, must take every opportunity to diversify to stay competitive and profitable.

Recent cases have shown that diversification can be a double-edged sword for primary producers, potentially putting existing tax and duty concessions at risk

Land Tax

In Queensland and New South Wales, land tax is imposed each financial year on the taxable value of all taxable land. Both states provide an exemption from land tax for land that is used for primary production.

Currently, the primary production land tax exemption is one of the most litigated state tax provisions in the country.  Recent cases and audits by Revenue offices have focussed on farms that generate additional income streams through non-farming activities, such as wind-farms, coal-seam gas plants, mining and quarry activities, waste processing and tourist accommodation.

To access the primary production concession, the land must be used for an activity prescribed by regulation as primary production, which includes the business of maintaining animals, cultivating crops or propagating plants for the purpose of selling produce from the animal, crop or plant.

For example, the growing of olive trees to produce olives for sale would be considered primary production.  The processing of the olives to make olive oil or the bottling of the olives are further steps in the production process and would not be considered primary production.

So if you grew olives, or any other animal, plant or crop, with the intention of processing the product yourself, the exemption may not be available for the land on which the animal, plant or crop was grown or the land on which it was processed.  Careful structuring is required to maintain the exemption.

In Queensland

The exemption will only apply to that part of the land used solely for the primary production business.

Where part of the land can be identified as being used solely for the business of primary production and a separate part of the land for another purpose, the Commissioner will apportion the taxable value of the land between use for primary production and use for the other purpose, and the concession will only be available for the value of the primary production land.

If it is not possible to clearly identify what part of the land is used solely for the business of primary production, the exemption will not be available for any of the land.

In New South Wales

The exemption is available for a parcel of rural land where the dominant use is primary production.

Relevant factors to determine whether primary production is the dominant use include:

  • the area of land allocated to each use;
  • the amount of capital expenditure, current expenditure, revenue and profit attributed to each use;
  • the scale, extent and intensity of each use;
  • the length of time that each use has been conducted on the land time; and
  • the labour and resources spent in using the land for each purpose.

The exemption is also available for a parcel of land that is not rural land but is used for primary production if the use of the land meets the commercial test: the primary production use must have a significant and substantial commercial purpose or character; and the primary production use must be engaged in for the purpose of profit on a continuous or repetitive basis.

Reference to a parcel of land means a parcel of land which has its own separate valuation from the Valuer General.  A parcel may therefore be one lot or several lots.

Importantly, unlike in Qld, in NSW a partial exemption cannot be applied to part of a parcel of land which is used for primary production. The whole parcel is either exempt or not exempt depending on whether primary production is the dominant use.

For example, in Australian Native landscapes Pty Ltd v Chief Commissioner of State Revenue, most of the area of a rural-zoned parcel of land was used to graze approximately 100 head of cattle.  A smaller area of the land was used to receive and process green waste into compost and to quarry for gravel, which was then sold for a profit.

The tribunal found that as the income generated from using the land for “composting” and “quarrying”, which was not primary production, far exceeded what would have ordinarily been made from the grazing of cattle, the dominant use of the land was no longer for cattle grazing.  Therefore, the exemption did not apply to any of the parcel of land.

If you have one parcel, which is made up of several Lots, and you intend that a use other than primary production be the dominant use of one of the lots (non-primary production lot), to ensure the remaining lots are eligible for the exemption, you should obtain a separate valuation from the Valuer General for the nonprimary production lot.


Whilst diversification may be good business practice, care needs to be taken when structuring your business to make sure that good business practice does not exclude you from otherwise available tax and duty concessions.

Please contact us if you have questions or concerns about your primary production status or would like advice regarding your business structuring.