How farm owners can save under new property tax legislation 

Source:Sandy Patterson - BSocSci LLB (Cape Town) LLM Environmental Law (Cape Town) Attorney of the High Court. Senior Lecturer, Institute of Marine and Environmental Law, Faculty of Law, University of Cape Town.

Farm owners can minimise their property tax bill through conservation. Recently passed property tax legislation means that for the first time all rural areas are included.

Some may view the link between property tax and conservation somewhat tenuous. The two are, however, integrally intertwined. Imposing a tax on property has the potential to significantly influence landowners’ land-use choices. Firstly, it may impact on the viability of holding or using land for various purposes and may compel landowners to increase their lands’ economic productivity, through development, to fund tax liabilities. This development is frequently associated with environmental degradation especially where it takes place in sensitive rural environments. Secondly, property tax regimes often subject land-uses to differential treatment with regard to valuation, tax rates and tax benefits. Those land-uses afforded preferential treatment, which are frequently those that promote development and undermine conservation, are naturally favoured by landowners.

The above is currently of particular relevance to South Africa for two key reasons. Firstly, the country’s property tax regime has recently been overhauled through the promulgation of the Local Government: Municipal Demarcation Act (27 of 1998), Local Government: Municipal Structures Act (117 of 1998) and most recently the Local Government: Municipal Property Rates Act (6 of 2004). Cumulatively, this reform extends the scope of the country’s property tax regime to all land in South Africa. Many rural areas, which were previously excluded from the property tax regime, are now subjected to it. 

Secondly, the Government has promulgated an array of laws, including the National Environmental Management: Protected Areas Act (57 of 2003) and the National Environmental Management: Biodiversity Act (10 of 2004), to conserve South Africa’s biological resources. These laws recognise the economic, social and environmental value of the country’s biological resources which are currently the most threatened on the planet. However, without the support and co-operation of private landowners, which currently own 84 percent of all land in South Africa, these laws may fail to halt the demise of South Africa’s biodiversity.

These two somewhat disparate legislative reform processes have fortunately recognised the link between property tax and conservation and afford rural landowners, in particular, various options to minimise their property tax liability whilst simultaneously promoting conservation. Provisions of key relevance to these landowners include the following:

·     Private landowners may contract their land into various forms of protected areas including: special nature reserves; national parks; and nature reserves. Once so contracted, the land is exempt from property tax liability provided that is not simultaneously developed or used for commercial, business, agricultural or residential purposes.

·     Private landowners can agree to have their land incorporated into an additional array of protected areas such as: protected environments; world heritage sites; protected forest areas; forest nature reserves; forest wilderness areas; and mountain catchment areas. Once so incorporated, municipalities are empowered to levy different rates, exemptions, rebates and reductions in respect of this land. These provisions also apply in respect of ‘farm properties’ not used for any commercial or alternate purpose.

·     The Property Rates Act recognises that various portions of large rural properties may be used for multiple purposes. The Act therefore allows municipalities to treat portions of a single property differently with regard to property tax liability.  This would enable a landowner, for example, to cultivate half his/her land and incorporate the other half into a protected area. Each portion would be treated distinctly for property tax purposes.

The Property Rates Act prescribes that each municipality must develop and adopt a rates policy which shall determine the criteria to be applied with regard to valuations, rebates, reductions and exemptions. The majority of municipalities are in the process of developing their property rates policies. These policies will play a crucial role in guiding the future implementation of property rates. Landowners interested in minimising their property tax liability while simultaneously promoting conservation would be well advised to engage their respective municipalities to ensure that these policies do include criteria that satisfactorily reward landowners which voluntarily assist in conserving South Africa’s valuable biodiversity