Land Tax Exemption for Primary Production: Win for the Taxpayer

The recent case 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 has provided clarification for the taxpayer surrounding the land tax exemption for ‘Primary Production Land’ when land is used for multiple purposes.

The Civil and Administrative Tribunal of New South Wales (Tribunal) interpreted the ‘dominant use test’ where land is used for multiple purposes and determined that no one factor is determinative.

Background

The applicants, Mr and Mrs Taylor and a trustee of a family trust, purchased land in a rural zoning area in New South Wales. The applicants incorporated Sand Dancing Pty Ltd (Sand Dancing), which was licensed to use the land to maintain horses for sale.

According to Sand Dancing’s tax returns for 2020 – 2022, its main business activity was horse breeding. However, the applicants also trained their horses in dressage, eventing and show jumping.

The New South Wales Chief Commissioner of State Revenue (Chief Commissioner) considered that the land tax exemption for primary production was not applicable when considering the dominant purpose test, and issued land tax assessment notices for the 2020 and 2022.

The Legislation

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

Under the Act, 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.

Whilst the primary production exemption was examined in this case pursuant to NSW legislation, these provisions are similar to the equivalent primary production exemptions contained in sections 65 to 68 of the Victorian Land Tax Act 2005 (Vic).

Issue

The issue for the Tribunal was whether the dominant purpose of the use of the land was for primary production.

The Decision

The Tribunal considered that the land was used for the purposes of rental of part of the house, the sale of horse related items, and maintenance of horses for the purpose of sale and for the purpose of training them in the equestrian disciplines.

It was decided that as there was no evidence of profitability from the sale of horse related items, that purpose was not of any significance.

The rental income was the most profitable purpose, as the horse sale business operated at a loss. However, as the vast majority of the land, and the investment of time and effort, was used for the maintenance of the horses, it was determined that the maintenance of horses constituted the dominant use of the land.

As such the two paramount competing purposes were the maintenance of the horses for their sale, and maintenance of the horses for their training. The Tribunal agreed with Sand Dancing that the training activities were not a competing purpose but formed part of the horse sale purpose as the training was conducted for no other purpose than to aid in the sale of the horses.

The Tribunal found that the land tax assessments should be set aside.

The Tribunal referred to and distinguished from the decision in Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44 (Godolphin) as in Godolphin, the sale and training constituted two distinct purposes. This decision has since been upheld by the High Court in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue (2024) HCA 20.  

Key Takeaways

Where the use of land is for multiple purposes, the dominant purpose must be the exempt purpose. However, it is important to note that the taxpayer will bear the burden of proving that the dominant purpose is the exempt purpose.

Taxpayers should keep in mind that revenue alone is not determinative as to the dominant use of land. Instead, an objective multifactorial analysis should be undertaken considering relevant matters including: the economic value of activities, the time and investment of personal labour and effort, and the proportion of land used for the purpose.

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