a firm that is acknowledged and respected for its property tax expertise as
much as its bloodstock expertise, when we come across a decision in a Land Tax case
that focuses on whether a full primary production exemption is applicable for a
rural property, it will obviously be of special interest to us.
It follows that if it's of special interest to us, it will be of special
interest to horse industry players running a business on rural property.
This case was decided in the Supreme Court of NSW on 30 January 2017 and is an
extension of the immense scrutiny that NSW land owners have been subjected to
in the past few years, especially those trying to claim a "primary production"
land tax exemption.
Though, given the uniformity of land tax exemption laws across Australia, the
principles in this case extend to land owners in other states who are trying to
claim primary production land tax exemption where the land also has a competing
purpose, e.g. part of the land is being developed for residential housing
The interesting aspect of this case as that in some of the years land tax
exemption was not granted even though the primary production activity was still
being carried on and the sale of the property had not even commenced.
Expenditure incurred was the major consideration as to what activity was
The issue was whether a company called Leppington Pastoral Co Pty Ltd
("Leppington"), was exempt from NSW Land Tax in respect of land which was a
dairy farm but also part of a major residential project whereby farmland was
being progressively released for urban development. This case turned on the
question of whether the 'dominant use' of land was 'primary production'.
Leppington owned and operated a dairy farm on land in and around an area
south-west of Sydney.
During the 2011 to 2014 land tax years, a significant portion of Leppington's
land (the 'Farmland') was progressively released to a developer ('GDC') for the
purpose of building a new township with associated housing (the 'development
GDC and its contractors had a right to access the Farmland prior to it becoming
development land under a licence granted to Leppington, under which GDC:
was required to notify Leppington prior to accessing the land; and
had an obligation to cause as little disruption as possible to farming
operations being carried out on it.
GDC used the Farmland during this period to carry out:
earthworks relating to adjacent Development Land; and
tests, either to obtain consents for future development on the Farmland, or to
satisfy conditions of approval on either the Farmland or the Development Land.
The Land Tax Commissioner ('LTC') assessed Leppington to land tax in respect of both
the Development Land and
Farmland for the 2011,2012, 2013 and 2014 land tax years. Leppington objected
to the LTC's assessments in respect of the Farmland portion.
Land Tax exemption rules for Primary
Under Section 10AA of the NSW Land Tax
Management Act 1956
Land that is rural land is exempt from
taxation if it is land used for primary production.
For the purposes of this section, land used for "primary production" means
the dominant use
of which is for:
(b) the maintenance of animals (including
birds), whether wild or domesticated, for the purpose of selling them or their
natural increase or bodily produce, or
Leppington claimed that during the 2011-2014 land tax years, the dominant use
of the Farmland was primary production because that use was physicall
y and economically
dominant over the non-primary production use of the
Farmland during those tax years.
Land Tax Commissioner contentions
The LTC did not dispute that the Farmland was used for "primary production" as
defined in the above section. He did however consider that the dominant use of
the Farmland in the 2011-2014 land tax years was preparing the Farmland for
imminent development, and carrying out development activities relating to
The Supreme Court decision was a "shared" victory for Leppington and the LTC.
The court held that Leppington had satisfied its onus of proving that the
dominant use of the Farmland was primary production for the 2012
land tax years, but not
for the 2011
His Honour examined the ordinary meaning of the term "dominant" and concluded
that based on dictionary definitions, the term "carries the notion of not just being the chief use or most influential
use, but of being a ruling, governing or commanding use".
"Dominant use" factors
His Honour noted that in determining the 'dominant use' of the Farmland in each
land tax year, it is necessary to consider:
the scale and intensity of the primary production use of the Farmland, and
relevant to – but not determinative of that question – is the extent to which
use of the subject lands makes a financial
to Leppington's dairy operations;
whether activities conducted by GDC on the Farmland amounted to the
commencement of use of the Farmland for residential development or whether
residential development remained a contemplated future use; and
the nature, extent and intensity of the various uses of the Farmland, the
extent of the Farmland used for different purposes and the time, labour and
resources spent in using the Farmland for each purpose.
Having regard to these considerations, the Court held that for the 2012
land tax years:
the evidence showed that the only substantial competing use of the Farmland was
by consultants for the purpose of carrying out tests in connection with
existing and proposed residential development. There was also a small amount of
earthworks. Together, this development work was "episodic" and carried out only
over a small area, such that overall, the primary production use of the
Farmland in those years dominated
therefore Leppington had established that the dominant use of Farmland was
primary production, and that the LTC's land tax assessment relating to the
Farmland should be revoked for those years.
However, for the 2011
years, the Court held that
Leppington had failed to establish that the dominant use of the Farmland was primary
production, and therefore the LTC's land tax assessments for those years should
be confirmed, i.e. no exemption.
His Honour found:
For the 2011 land tax year, there was imprecision in Leppington's evidence as
to the value to it of the primary production activities on the Farmland.
Furthermore, the evidence clearly showed substantial expenditure by GDC on
earthworks and on consultant's activities which exceeded
Leppington's expenditure on cattle grazing and
raising of pastures and crops. His Honour inferred that based on the expenditure
on each competing use, the
development activities were of greater value to GDC in the 2011 year than the
primary production activities were to Leppington.
For the 2014 land year, the evidence established the extensive earthworks were
carried out on the Farmland, and the costs incurred by GDC for consultants werealmost double
the costs in 2012 and
2013 combined, while the primary production use was materially less than it had
been for 2012 and 2013.
For the really curious, NSW Revenue Ruling No. LT 097 on the topic of "Land
Used for Primary Production" is the best authority for this decision.
Please contact me if you wish for me to
clarify or expand on any of the matters raised in this article.
PAUL CARRAZZO CPA
CARRAZZO CONSULTING CPAs
Glenferrie Road, Hawthorn, VIC, 3122
(03) 9982 1000
FAX: (03) 9329 8355
MOB: 0417 549 347