Friday, 16 January 2009

Rates land tax and plantations

Do MIS companies pay their fair share of municipal rates?

The answer in short, is they are given special treatment which allows them to pay lower rates than other farmers. But it is in the matter of land tax where the State Government has been seriously remiss. Many of the failed and failing MIS schemes are arguably not entitled to land tax exemption which has always been granted in the past.

 Section 11 of the Valuation of Land Act 2001 outlines the approach to valuations by the Valuer General. Sec 11(7) specifically excludes tree plantations from both land value and capital value (capital value is the sum of land value plus the value of improvements such as buildings, structures and virtually everything attached to the land except items of plant).

Fruit growers have their trees included in the value of their land and pay municipal rates accordingly, but not MIS growers.

The latter have, in a lot of cases, removed unwanted houses and other capital improvements thereby reducing the capital value of their properties, and replaced them with plantation trees which are specifically excluded.

There are also the negative externalities produced by MIS companies by way of extra use of scarce water resources and extra wear and tear on country roads. And they are given a discount on their rates.

It’s a crazy world. Little wonder they kept lining up to buy more of our land.

Compare this, for instance to the situation of a dairy farmer whose assets predominantly consist of land and improvements.

(a)the unimproved land is included in land value.

(b) land improvements such as drainage and land levelling are included in the land value.

(c) improved pastures are included in the land value.

(d)dams and irrigation schemes are included in the capital value.

(e) dairies especially the modern rotary dairies are essentially items of plant and shouldn’t be included in capital value but often are still treated as structures and included in capital value.

Notwithstanding that a tax deduction may have been obtained for all the above improvements, they are nevertheless included in any value for rates purposes. Unlike plantation trees.

But trees are only a crop and crops aren’t included in the value of a property? Not quite right. A dairy farmer’s pasture is simply a crop of, say, perennial ryegrass and it is included.

What about fruit trees? Fruit trees are regarded by our law (based on old English case law) as simply the capital structures which produce a crop of fruit. The trees themselves are not a crop, the fruit is. Accordingly the trees being attached to the land are included in the capital value of the land and so extra rates need to be paid.

The Land Tax Act 2000 covers land tax. An exemption is granted to primary production land. In order to qualify as primary production land, the land must be used substantially for a business of primary production, which must be carried out in a business-like manner, and with a reasonable expectation of profit.

There needs to be a reasonable expectation of profit. For most MIS schemes it is virtually impossible to argue that there is a reasonable expectation of profit so therefore a business of primary production as defined in the Land Tax Act 2000 cannot exist.

In the case of Great Southern (GSL), for instance, there is evidence on the public record of actual and predicted tree crop yields for 10 years’ crops and none will be profitable (although the first 3 Projects were propped up Ponzi style to appease the initial investors and attract new investors).

The solution from a land tax perspective is to apply for a Private Timber Reserve (PTR). So long as it’s got PTR status a business of primary production needn’t exist A land tax exemption will apply regardless. Owners of commercial properties can subsidise the greedy ill-disciplined activities of MIS promoters.

GSL’s Temma property has attracted much comment recently, not because it’s the only failed MIS scheme (there are many), but because it’s a good example of the genre. Even GSL’s Independent Forester confirmed 2 months ago that Temma “had significant areas of limited growth and plant failure, particularly in the low lying country. ……… approximately 36 hectares of this area will not be replanted.(How much will be replanted?). Horses and cattle were present within the plantation and had caused some tree damage”.

Flying to the moon will be easier than trying to harvest a profitable tree crop from Temma after 10 years.

David Llewellyn has been provided with all the evidence that a business of primary production is not being conducted either for income tax purposes or land tax purposes. He was specifically asked in the House on 24th September 2008 about Temma and the proposed PTR application. He said he would investigate. He simply gave GSL time to process their PTR application to assist GSL avoid a possible land tax assessment. The government value of the Temma property (land only) is $5.29m. The land tax payable would have been $123,337.50.

It is believed that Mr. Llewellyn has also failed to report to the ATO possible breaches of Federal income tax requirements.

So not only have the Feds subsidised the establishment of trees at Temma to the tune of $3m, the State government is now allowing a land tax exemption to the tune of $123,337.50 pa.

There are lots of other properties throughout Tasmania where MIS companies have planted trees and where there is little likelihood of profits.

Every single one of GSL projects from 1998 to 2003 that GSL is currently attempting to buy back from investors will fail to provide the investors with a profit.

It appears Mr Llewellyn is now allowing PTRs to help MIS companies avoid their tax responsibilities.

The paucity of responses from the major parties whilst witnessing the decline of private forestry in this State is breathtaking.

The State Government’s tacit support for MIS companies to exploit the loophole in the Land Tax Act by opting for PTRs is unlikely to endear increasingly disenchanted voters to the Government’s cause – not to mention the special rates treatment given to MIS companies compared to other farmers.

(Published in Tasmanian Country 16th January 2009)


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