High Court Ruling - Land Tax Exemption for Primary Production

The High Court in the case of Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue (2024) HCA 20 has dismissed an appeal and upheld the New South Wales Court of Appeals finding that Godolphin Australia Pty Ltd (Godolphin) cannot claim the land tax primary production exemption.

The decision has provided clarification of the exemption when land is used for multiple purposes. It has further expanded on the meaning of the ‘dominant purpose test’ after the recent clarification in the case of Dwayne Taylor FT Pty Limited as trustee for Dwayne Taylor Family Trust and DA and P Taylor v Chief Commissioner of State Revenue [2024] NSWCATAD 80 (Dwayne Taylor).  

Legislation

Section 10AA of the Land Tax Management Act 1956 (NSW) contains an exemption to land tax where the land is used for primary production.

Land is deemed to be used for primary production when, among other things, it is used for cultivation for the purpose of selling the produce of the cultivation, or the maintenance of animals for the purpose of selling them or their natural increase or bodily produce.

Background Facts

Godolphin owned land in rural New South Wales which was used to both breed and train horses. Unlike Dwayne Taylor, the horses were trained to submit them to equestrian competitions. The Chief Commissioner of State Revenue (Commissioner) considered that from the years 2014 – 2019, Godolphin was liable for land tax as his use of the land did not fall under the primary production exemption.

Godolphin challenged the Commissioners tax assessment. Whilst it was accepted by both parties that the dominant use of the land was for the maintenance of the horses, the Commissioner submitted that the dominant purpose was not for the sale of the horses or their natural increase or bodily produce.

The primary judge in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue (2022) NSWSC 430 held that Godolphin’s operations were integrated and as such there was not two distinct purposes for the maintenance of the horses, and the primary production exemption applied.

The appellate judge disagreed in Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd (2023) NSWCA 44 and determined that the dominant purpose must also include the purpose of the maintenance of the horses.

Issue

The issue for the High Court was whether the ‘dominant use test’ pertains to both the maintenance of the horses as well as maintenance for the dominant purpose of their sale or their natural increase or bodily produce.

The Decision

The Court determined that the dominant use of the land must be both the genus of the exception (the maintenance of animals) as well as the particular purpose (for selling animals or their natural increase or bodily production). Dominance was found to qualify both aspects of the exception.

Whilst a significant purpose for the maintenance of the horses was for their sale, this was deemed to fall short of the requirement that the dominant use of the land was for this purpose, and as such the exemption could not be found to apply.

In assessing the dominant use of the land, the Court maintained the use of the multifactorial assessment and considered at paragraphs 34 and 25:

[34] Whether land is being used for the dominant purpose of maintaining animals for their sale or the sale of their natural increase or bodily produce is a question of characterisation of the use or uses to which the land is put. The proper approach is to consider the amount of land used for any purpose, the nature and extent and intensity of the various uses which are taking place, and the time and labour and resources spent in using the land. In some cases, the financial gain from a given activity may be an indicator of predominance. And in all cases one should not ignore the conclusion reached by an objective observer who is viewing the land as a whole.

[35] Where land has more than one use, for a given use to be dominant it must exhibit such predominance as to impart to the whole of the land the necessary exempting character …

Key Takeaways

The taxpayer should bear in mind that when the use of land is for multiple purposes, the dominant purpose must be the exempt purpose.

The Court has clarified that revenue alone is not sufficient to determine the dominant purpose of the use of the land and instead the nature, intensity and scale of competing uses must also be considered.

Taxpayers should be alert to the fact that what they deem to be an integrated business may be considered as distinct uses of their land and may disqualify them from the land tax exemption.  

Please contact us for advice on the primary production land tax exemption or any other state tax matters.

Alasdair Woodford
Principal
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal

Jessica Loftus
Seasonal Clerk
E: jloftus@ha.legal